Research On Integrated Risk Economic Capital Measurement And Allocation Of Insurance Companies Based On Copula-Kernel Model

Risk management is indispensable for any enterprise, is particularly important to financial industry with high-risk. As one of the main financial industry, the insurance is industry operating risk, need to take more risk than other financial sectors. With the further opening up of the insurance market and the economic growth, Chinese insurance companies are facing increasingly fierce competition, building a sound risk management system is the inherent demand of each insurance company.As an advanced means of risk management, economic capital risk management has been widely used in the international insurance industry, having a positive impact on the risk prevention, sound operation of insurance company. Economic capital has been recognized by the insurance companies and regulatory agency in China, is the main trend of the risk management in insurance industry. Research on the traditional insurance economic capital is still a rough measurement based on normality assumption and single risk class. The research often takes the economic capital as a single index, studies measurement process and allocation process separately. It can not accurately measure the overall risk faced by insurance companies, does not fully play the role of economic capital risk management. Integral economic capital risk management framework includes defining risk, integrating risk economic capital measurement and capital allocation. This paper attempts to take three main risks faced by the insurance company as research object, they are insurance risk, credit risk and market risk, studies how to build the framework of capital risk management economy accurately and use available data to carry out empirical analysis. It has a great significance to actively promote the implementation of economic capital risk management for the insurance company.In the theoretical part, the paper gives the specific method of the model and the selection basis based on economic capital management framework and the theory of Copula function, In the economic capital management, the choice of risk measurement tool directly affects the quality of economic capital model. In this paper, I choose the consistency risk measurement tool TVaR to measure risk and allocate economic capital, it does better in reflecting portfolio diversification effect and realizing perfect capital allocation. In risk integration, the correlation between the various risks is an important factor to consider in measuring the integration risk, linear correlation hypothesis in traditional is not suitable to complex financial risk. Development of Copula function theory which has been practical applied in the financial industry provides technical support for integrating risk. The Copula function can describe the complicated correlation structure which is nonlinear and asymmetric, it can connect marginal distribution of different types, provides a more accurate method for insurance company to measure integration economic capital.This paper selects the insurance monthly payment rate, the SSE bond index monthly returns and SSE Composite index monthly returns to describe three types of risk, uses Copula-Kernel model to build insurance risk and credit risk economic capital model, credit risk and market risk economic capital model, further establishes three risk economic capital model. This paper uses Monte Carlo simulation method to calculate integrated risk economic capital and allocate capital based on TVaR. Conclusion:First of all, risks in the insurance market are not subject to normal distribution, and there is a nonlinear relationship. Secondly, the integration of risk economic capital with Copula function is smaller than the linear sum of different risks, it reduces unnecessary assets and is conducive to the insurance company to maintain a reasonable scale of assets. Thirdly, the capital allocation result shows that the largest is insurance risk, the least is credit risk which closes to0, and provides guidance for insurance company to allocate capital effectively. Finally, portfolio risk diversification effect is obvious, the mitigation proportion related to the correlation between the various risks, the insurance company risk management need consider the correlation when selects risk object.