ERM-106-12: Economic Capital-Practical Considerations


Reading Source:

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

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