ERM-106-12: Economic Capital-Practical Considerations


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Online Link to this Reading:

Topics Covered in this Reading:

  • What is economic capital?

  • What are the benefits of economic capital analysis?

  • How can economic capital Analysis be applied?

  • What type of risks should be considered?

  • How should each of those risks be measured?

  • What modelling decisions shoul inform the analysis?

    • VaR vs Tail-VaR
    • Stochastic analysis vs stress test
    • Real world vs. risk neutral
    • Diversification effect
    • Time horizon to consider
    • Whether to allow negative cumulative surplus in the middle of time horizon
    • whether to account for future new business

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ERM-106-12: Economic Capital – Practical Considerations
ERM-602-12: Investment Management for Insurers - Ch. 11: The Four Faces of an Interest Model