A revisit to ruin probabilities in the presence of heavy-tailed insurance and financial risks

Chen, Yiqing; Yuan, Zhongyi

doi:10.1016/j.insmatheco.2017.01.005

Cited by 17 publications

(9 citation statements)

References 24 publications

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“…Medium-sized enterprises do not have full insurance coverage [11]. The average business in General, forced to insure only the risks associated with hazardous production [12].…”

Section: Results Of the Researchmentioning

confidence: 99%

Insurance of Financial Risks of Industrial Enterprises

Olga¹,

Lucia²,

Elena³

2020

Proceedings of the “New Silk Road: Business Cooperation and Prospective of Economic Development” (NSRBCPED 2019)

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The article discusses the theoretical and practical aspects of the development of the market for insurance of financial risks of industrial enterprises. Theoretical studies have revealed that the total insurance protection of industrial enterprises is represented by property insurance, business risk insurance, civil liability insurance and personal insurance. In their research, the authors turned to foreign sources and studied the features of insurance of industrial enterprises abroad. In foreign practice, these areas of insurance have become widespread, but in Russian practice they are never used. However, the authors have identified a narrow list of insured financial risks of industrial enterprises in Russia. In Russia today, only insurance in case of production stoppage has become widespread. The authors attempt to consider one of the poorly developed insurance industries in Russia, as insurance of financial risks of industrial enterprises, to show the problems of this insurance industry and determine ways to solve them. The analysis showed that the leader of the insurance market in terms of collected premiums is property insurance. Premiums for financial risk insurance are increasing due to the growth of bank card insurance. The authors, when studying large and mediumsized businesses, found that large enterprises use business insurance, avoiding gray "salary" schemes and cover a large amount of various risks. However, some companies use "double" accounting in their practice, which makes it difficult for insurers to determine the real level of risk of their business. The small number of insurance companies and the unwillingness of insurers to provide financial risk insurance services for industrial enterprises are the main problems today. The authors propose to adopt standard insurance rules in this area.

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“…Medium-sized enterprises do not have full insurance coverage [11]. The average business in General, forced to insure only the risks associated with hazardous production [12].…”

Section: Results Of the Researchmentioning

confidence: 99%

Insurance of Financial Risks of Industrial Enterprises

Olga¹,

Lucia²,

Elena³

2020

Proceedings of the “New Silk Road: Business Cooperation and Prospective of Economic Development” (NSRBCPED 2019)

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“…To mitigate this risk, regulators of financial and insurance institutions set capital requirements using sophisticated risk measurement and management models. These requirements are derived from international agreements known as "Basel III" for financial institutions (Andrieş et al, 2022;Oliveira & Ferreira, 2019) and "Solvency II" for insurance companies (Carvalho & Cardoso, 2021;Chen & Yuan, 2017;Macohon et al, 2017). In essence, regulations based on these agreements require institutions to assess their risks and, based on this, to maintain a minimum amount of capital to minimize the risk of insolvency (Euphasio Junior & Carvalho, 2022;Gupta & Liang, 2005;Ramsden & Papaioannou, 2019).…”

Section: Insolvency Risk and Capital Requirementsmentioning

confidence: 99%

On the edge: The impacts of cash flow at risk on the shareholders’ equity of public companies in Brazil

Salotti,

Carvalho

2024

Rev. contab. finanç.

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The objective of this article was to measure the cash flow at risk (CFaR) of non-financial companies in the Brazilian capital market and compare it to shareholders’ equity in order to assess the risk of insolvency. Unlike banks and insurance companies, which have strong capital requirements, the current regulation of non-financial institutions in Brazil does not provide for the calculation or maintenance of a minimum shareholders’ equity. This study fills a gap in the literature by relating CFaR to the shareholders’ equity of entities, providing a measure of insolvency risk. Monitoring insolvency risk (i.e., the possibility of negative shareholders’ equity) is critical for any entity, regardless of its industry, market, or size. The results of the CFaR measurement show that companies in different sectors can be exposed to insufficient resources in the event of operational problems. It is hoped that this will help regulators in different sectors to assess minimum capital requirements. CFaR was measured using Ebit and Ebitda (quarterly and annual). The panel consisted of 186 companies listed on the B³ between 2010 and 2022, totaling 4,897 company-quarters. The companies were divided into eight subgroups based on their characteristics. The results showed that non-financial listed companies in the Brazilian market may be undercapitalized, as 18% of the 169 entities that currently have positive shareholders’ equity would become negative at a 1% risk level. CFaRs were also re-estimated during the pandemic and did not show a clear pattern compared to other periods.

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“…In a similar line, but imposing a dependence structure between the claims occurrences in different lines of business, Dong and Wang (2018) use renovation processes with stochastic financial returns to derive asymptotic formulas for the ruin probability in finite and infinite time. Still incorporating dependence, there are authors who prove how the ruin probabilities can be affected by the tail dependence structure between financial and insurance risks (Chen & Yuan, 2017;Constantinescu, Kozubowski, & Qian, 2019;Vidmar, 2018).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability

Euphasio

Carvalho

2022

Rev. adm. contemp.

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Context: insurance companies are important to society, since they guarantee financial protection to individuals from property losses, in addition to fostering the capital market through the allocation of guarantee assets. Thus, it is essential to evaluate the instruments that guarantee their long-term financial solvency. Among them are the adoption of reinsurance treaties, the sizing of the solvency capital, and the actuarial modeling of risk processes, which allow the measurement of the ruin probability. Objective: estimate the ruin probability in risk processes with the adoption of reinsurance contracts (quota share and excess of loss), compared to scenarios without such treaties. Methods: the Cramér-Lundberg process was simulated using the Monte Carlo method, adjusting several probabilistic distributions to the severity of the compound Poisson process, which is calibrated with a set of 3,917,863 real microdata, from 30 insurance lines of business. Results: it was found that, although each branch presents particularities in the claim severity, the correct choice of reinsurance (proportional or not) implies the reduction of the ruin probability for a fixed solvency capital. Conclusion: the appropriate choice of the reinsurance contract, especially when there is evidence of high kurtosis in the claim values, intensifies the exponential decline in the relationship between the solvency capital and the ruin probability.

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A revisit to ruin probabilities in the presence of heavy-tailed insurance and financial risks

Cited by 17 publications

References 24 publications

Insurance of Financial Risks of Industrial Enterprises

Insurance of Financial Risks of Industrial Enterprises

On the edge: The impacts of cash flow at risk on the shareholders’ equity of public companies in Brazil

Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability

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