Solvency Capital Requirement Coverage Ratio at Risk

Sammanfattning: The Solvency II regulation is an important part of a property insurance company's reality. There is a need to complement the risk management focus on value changes and the financial result with a focus on the regulatory consequences of the value changes. The most important measure in the regulation is the Solvency Capital Requirement coverage ratio. This thesis investigates the risk of a changed Solvency Capital Requirement coverage ratio due to risk in the investment portfolio. To do this a new key ratio, the Solvency Capital Requirement coverage ratio at risk (SCRCRaR), is developed. The SCRCRaR measure is strongly influenced by the value at risk approach. Instead of calculating the negative value change that will be surpassed with a certain probability, the SCRCRaR calculates the negative Solvency Capital Requirement coverage ratio change that will be surpassed with a certain probability. The results presented show that the SCRCRaR is significantly different from the value at risk, but that big negative changes in the Solvency Capital Requirement coverage ratio can be accurately estimated from value changes of the investment portfolio. If a property insurance company wants to improve the risk profile of its Solvency Capital Requirement coverage ratio, diversification among the risks in the Solvency II regulation's Standard Formula is key.