Risk and capital management in non-life insurance
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[edit] Capital base risks
Non-life insurance companies are inherently risky in relation to their capital base. Reserve risk, premium risk, underwriting risk, operational risk, interest rate risk, equity price risk, credit risk, and investment risk are main risk categories which influence the key question: How much capital does the insurer need at the beginning of the year in order to be able to cover future financial liabilities with a specific per cent security?
[edit] ERM, DFA and ALM
Enterprise Risk Management (ERM) is an important centralized management approach to control the entire environmental risks that an insurance company faces. The key point is to have a simultaneous approach to all relevant financial risks at a business corporate level. By using Dynamic Financial Analysis (DFA) techniques the insurers are able to model financial risk correlations and simulate statistical outcome effects to control the capital solvency security. The reinsurance program of a company is a key tool to appropriately adjust the security level, given all the risks that the company faces. Within the DFA approach, Asset Liability Management (ALM) is a way to allocate capital and return on equity demands down to each insurance lines of business in the company.
