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Measurement of Risk, Solvency Requirements and Allocation of Capital within Financial Conglomerates
Company: University of Waterloo
Company Url: Click here to open
Year Of Publication: 2001
Month Of Publication: November
Pages: 12
Download Count: 974
View Count: 10564
Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 9-26-2002
Publisher: Administrator
Summary
This paper addresses the allocation of solvency capital in multi-line financial businesses. Although this paper is uniformly applicable to financial enterprises of all types, the terminology in the paper is mainly that of insurance. The TailVaR risk measure is extended ina natural way to allocating capital to each of the business units. This method of allocation allocates capital in a way that is invariant over the method of decomposing the enterprise into business units. Analytic results are derived in the case of multivariate Normal risks. The key result of this paper is that the Tail VaR-based proportional allocation of total required capital is identical to that based on mean-variance considerations analogous to the CAPM in the case of the multivariate Normal distribution. The allocation methodology results are then applied to a real bancassurance portfolio of 10 lines of business to illustrate the various concepts discussed in the paper.
Author(s)
Panjer, Harry H. Sign in to follow this author
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