Under Solvency II, corporate governance requirements are a complementary, but nonetheless essential, element to build a sound regulatory framework for insurance undertakings, also to address risks not specifically mitigated by the sole solvency capital requirements. After recalling the...

This paper empirically studies the impact of consumer reaction to default risk on an insurer's optimal solvency level. Using experimentally obtained data, we derive a price-default risk-demand-curve that serves as an input variable for the insurer's risk strategy. We show that an insurer should...

This paper analyzes how capital-related frictional costs (e.g., corporate or personal taxes) influence insurers' optimal pricing and safety level decisions. Frictional costs are modeled with an innovative generic approach that is compatible with many realistic forms of taxation. I show that in...

This paper investigates the question of how risk management should be embedded in a firm's hierarchy. We take an innovative approach to this question by combining the well-known capital asset pricing framework with game-theoretic thinking. We discover the conditions under which risk information...

In this paper, we develop an analytical framework for conducting forward-looking assessments of profitability and solvency of the main euro area insurance sectors. We model the balance sheet of an insurance company encompassing both life and non-life business and we calibrate it using country...

Tail-correlation matrices are an important tool for aggregating risk measurements across risk categories, asset classes and/or business segments. This paper demonstrates that traditional tail-correlation matriceshich are conventionally assumed to have ones on the diagonalan lead to substantial...

Historical evidence like the global financial crisis from 2007-09 highlights that sector concentration risk can play an important role for the solvency of insurers. However, current microprudential frameworks like the US RBC framework and Solvency II consider only name concentration risk...

This paper investigates the effects of a rise in interest rate and lapse risk of endowment life insurance policies on the liquidity and solvency of life insurers. We model the book and market value balance sheet of an average German life insurer, subject to both GAAP and Solvency II regulation,...

Through the lens of market participants' objective to minimize counterparty risk, we provide an explanation for the reluctance to clear derivative trades in the absence of a central clearing obligation. We develop a comprehensive understanding of the benefits and potential pitfalls with respect...

Modern regulatory capital standards, such as the Solvency II standard formula, employ a correlation based approach for risk aggregation. The so-called "square-root formula" uses correlation parameters between, for example, market risk, non-life insurance risk and default risk to determine the...