Prudent decisions to estimate the risk of loss in insurance

    Casian Butaci Affiliation
    ; Simona Dzitac Affiliation
    ; Ioan Dzitac Affiliation
    ; Gabriela Bologa Affiliation


The directive 2009/138/EC „Solvency II”, provides the determination of insurance capital requirements based either on a standard formula or an internal model built by the company and approved by the regulatory authority. The build of an internal model involves the determination of an extreme quantile from the empirical distribution of portfolio. An estimate of this quantile, with a 99.5% confidence level, requires a large number of simulations, each taking into account different scenarios as: insufficient reserves, unfavourable developments of financial assets, etc. The present paper proposes to argue the necessity of the extreme value theory approach in order to estimate the risk of loss for the insurance issue, in accordance with European Directive „Solvency II”, from the perspective of making prudent decisions for the assessment of insurance capital requirements.

Keyword : solvency, insurance, capital requirement, extreme value, risk of loss, prudential estimation

How to Cite
Butaci, C., Dzitac, S., Dzitac, I., & Bologa, G. (2017). Prudent decisions to estimate the risk of loss in insurance. Technological and Economic Development of Economy, 23(2), 428-440.
Published in Issue
Mar 14, 2017
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.