Undertaking Specific Parameters: un'analisi comparativa del mercato assicurativo italiano

With the implementation of the Solvency II Directive, a new approach for the calculation of the Solvency Capital Requirement for insurance and reinsurance undertakings has been proposed, that associates the prudential capital that must be held to the individual risk profile of the company. To reach this aim, multiple methodologies have been introduced, each with varying level of simplicity and sensitivity to the risks faced by the undertakings. After a presentation of the entire framework, this thesis specifically explores one of them, i.e. the Standard Formula with Undertaking Specific Parameters, that enables non-life insurance undertakings to better capture their exposure to underwriting risks by replacing market-wide volatility factors provided by the regulator with internally computed factors based on their own data. This work provides a comprehensive overview of the framework, delving into the USP approval process , input requirements and its application, with an in-depth analysis of the Premium and Reserve risk sub-module of the Non-Life underwriting Risk module. As stated in the Directive, this sub-modules captures both the premium and reserve risks to which insurance undertakings are exposed, arising from the uncertainty surrounding the timing and amount of losses and, consequently, the fairness of the premiums charged and the reserves set aside. According to the Standard Formula, its SCR is obtained combining the volume measure and volatility factor of the two risks following specific guidelines provided in the Delegated Acts of the Directive, in order to benefits from diversification effects deriving from the correlation among risks. This thesis focuses specifically on premium risk, providing a detailed description of the entire process to determine its USP volatility factor using as input data historical time series of aggregated losses and earned premiums. Insights are given regarding data requirement and preparations, the hypothesis they must satisfy, assumptions and finally, the calculation methodology. Based on data of the biggest insurance companies of the Italian market, a benchmarking study on USP volatility factor for premium risk is performed . After the verification of all the hypothesis through the required test, volatility factors for all the companies are estimated for five Lines of Business. By comparing the results obtained, this thesis shows practically the benefits of the application of this methodology for the determination of the SCR, highlighting the challenges that must be addressed by companies and regulators.