Capital Allocation in a Solvency II framework

The introduction of Solvency II regulatory framework enhanced a new risk- based capital evaluation, which can be seen as a powerful opportunity for the undertakings to better manage their capitals. The Risk Appetite State- ment of an undertaking provides qualitative indications of the risk pro?le. Under the new risk-based regulation, the support of quantitative indicators may give start to new strategic planning compliant with the Solvency II environment. The purpose of this thesis is to introduce applications of the Solvency Capi- tal Requirement allocation. First, we describe the Euler's allocation method for computing the allocated SCR of each Risk the company is exposed to, taking into account diversi?cation e?ect among di?erent risks. Afterwards, we explain how this approach can be applied to de?ne helpful risk indicators in order to evaluate undertaking risk exposure under di?erent business seg- mentation levels. The aim is to build up functional risk indicators that can be used to manage the risk appetite by undertaking's operational functions. In order to provide a practical example of the described allocation method and indicators, we have implemented an empirical analysis on a Non Life insurance company and developed a well rounded business study. Moreover, we provide some classical optimization problems in order to evaluate the new business in terms of RoRAC.