Centro de Documentacion de Fundación MAPFRE - Return on risk-adjusted capital under Solvency II : implications for the asset management of insurance companies

MAP20180025945

Return on risk-adjusted capital under Solvency II : implications for the asset management of insurance companies / Alexander Braun, Hato Schmeiser, Florian Schreiber

Sumario: We derive a European life insurer's return on risk-adjusted capital (RORAC) under the Solvency II capital requirements. To do so, we draw on historical time series data and construct a large number of asset allocations, taking into account current portfolio shares of the German life insurance industry. Subsequently, we determine expected profits and market risk capital charges by means of the standard formula. Our results indicate that the RORAC is mainly driven by the capital requirements, while the expected profits are almost irrelevant. Moreover, we show that less-diversifoed portfolios with high asset risk need to be backed by low capital buffers and therefore result in high RORAC values. Well-diversified portfolios with balanced risk-return profiles, on the other hand, involve higher capital charges and thus achieve low RORAC figures. Hence, under Solvency II, a RORAC-based performance measurement may have detrimental effects for a life insurer's stakeholders

En: Geneva papers on risk and insurance : issues and practice. - Geneva : The Geneva Association, 1976- = ISSN 1018-5895. - 02/07/2018 Volumen 43 Número 3 - julio 2018 , p. 456-472

1. Solvencia II . 2. Empresas de seguros . 3. Gestión de activos . 4. Rentabilidad ajustada al riesgo . 5. Seguro de vida . 6. Requerimientos financieros . 7. Administración de la empresa de seguros . I. Schmeiser, Hato . II. Schreiber, Florian . III. Title.