CORRELATIONS BETWEEN INSURANCE LINES OF BUSINESS: AN ILLUSION OR A REAL PHENOMENON? SOME METHODOLOGICAL CONSIDERATIONS
Benjamin Avanzi, Greg Taylor, Bernard Wong
Astin Bulletin: The Journal of the ASTIN and AFIR Sections of the International Actuarial Association | Cambridge University Press (CUP) | Published : 2016
This paper is concerned with dependency between business segments in the non-life insurance industry. When considering the business of an insurance company at the aggregate level, dependence structures can have a major impact in several areas of Enterprise Risk Management, such as in claims reserving and capital modelling. The accurate estimation of the diversification benefits related to the dependence structures between lines of business (LoBs) is crucial for (i) capital efficiency, as one should avoid holding unnecessarily high levels of capital, and (ii) solvency of the insurance company, as an underestimation, on the other hand, may lead to insufficient capitalisation and safety. There ..View full abstract
Awarded by Australian Research Council
This research was supported under Australian Research Council's Linkage Projects funding scheme (project number LP130100723, with funding partners Allianz Australia Insurance Ltd, Insurance Australia Group Ltd and Suncorp Metway Ltd). The views expressed herein are those of the authors and are not necessarily those of the supporting organisations. The authors are grateful to anonymous reviewers for comments that led to significant improvements of the paper, to James Basman, Stephen Britt, Yusuf Cakan and David Koob for very fruitful discussions, as well as to Kevin Lam for his excellent research assistance.