Research on Economic Capital Measurement and Diversification Benefits of Property and Casualty Insurance Companies—Based on R-Vine Copula
Economic capital plays a vital role in the internal risk management and capital allocation of insurance companies,which can accurately reflect the risk status faced by insurance companies and provide an important basis for effective risk manage-ment and rational capital allocation.In this paper,the economic capital of property and casualty(P&C)insurance companies is taken as the research object.Under the framework of traditional asset-liability model,the R-Vine Copula risk aggregation method is used to jointly model assets and liabilities,and then the economic capital is calculated and the corresponding diversification bene-fits are analyzed,compared with regulatory methods.The research results show that the assets and liabilities of P&C insurance companies have a complex dependence relationship.The use of the Vine structure can more comprehensively and accurately de-scribe the asymmetric and nonlinear correlation between assets and liabilities of P&C insurance companies,and fit the tail charac-teristics of the data,which is conducive to obtaining a more robust net capital estimate and more real economic capital require-ments,as well as the diversification benefits of economic capital.Compared to the linear aggregation method used in solvency regu-lations,the R-Vine Copula risk aggregation method can leverage the correlation information between asset variables and liability variables,making it suitable as an internal model for calculating economic capital.This model,oriented towards risk,can assist P&C insurance companies in managing risks more effectively and enhancing the stability and sustainable development capabilities of their overall business,providing a new approach for studying the linkage between assets and liabilities.
economic capitalR-Vine Copuladiversification benefitruin probability
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