Session: 06

General Insurance

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Summary

Using the inequality by Cramèr it is possible to calculate an upper bound for the risk willingness of insurance companies. The upper bound can be calculated using the estimators for the expected values an the variances of the results (premiums minus claims cost) of the last years. Generally the portfolios meet assumptions for the inequality by Cramèr.

Using the results of the years 1987 to 1996 the risk willingness of the thirteen largest Austrian non-life insurance companies was calculated. The entrepreneurial risk aversion (the reciprocal value of the risk willingness) was compared with the equity capitalization meeting the EU-solvency regulations. Significant deviations could be noticed. Rating the insurance companies by means of other operating figures show that the risk aversion gives a better view of the financial security of the insurance companies than the equity capitalization meeting the current solvency regulations.

It should be considered to add a regulation about a maximum risk willingness to the current EU-solvency directives.

Short or even insufficient technical reserves have a much greater impact on the solvency or the respectability of a company than the increase of the equity capitalization and cannot be controlled or even compensated by the proposed additional regulation. After all just those companies would be covered whose portfolios demonstrate a high risk willingness.

The addition should limit the risk willingness. In my opinion the hazard is slight that by using the proposed approach the risk willingness is estimated too low. An underestimation could be possible if the portfolio does not meet the assumptions for the inequality by Cramèr. Because of the very general assumptions for the validity of the inequality by Cramèr one can assume that the risk willingness will be rather smaller than estimated by the proposed approach.

If an insurance company - knowing its portfolio closer - can prove that its risk willingness is less than that calculated by means of the inequality by Cramèr, it should be possible that this insurance company is allowed to use a founded, more accurate estimation.

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1944 born in Vienna Austria.

1971 - 1978 assistant at the Institute for Actuarial Mathematics at the Vienna University of Technology.

Since 1978 Actuary at the Austrian Insurance Supervision.

Since 1990 Universitätsdozent (university lecturer) at the Vienna University of Technology.

Since 1996 Allgemein beeideter und gerichtlich zertifizierter Sachverständiger für Versicherungsmathematik (court appointed expert for actuarial mathematics).

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