An insurance company is significantly affected by market risks. In many current risk-based capital models, the market risk capital charge is determined by applying the fixed pre-determined percentage to the annual statement values regardless of market conditions. Many questions have been raised as to whether the fixed pre-determined percentage is the accurate measure of market risks. In response to this problem, this paper undertakes to determine a suitable percentage for the market risks faced by life insurers in Malaysia. The data involved in this paper are Kuala Lumpur Composite Index (KLCI), Malaysia Bond Index, foreign exchange rates and Housing Price Index (HPI) for year 2004 to 2009. The volatility model is used as proxy to measure the market risk charges. Then, a simulation is run to calculate the dynamic risk charges of market risks by adopting a dynamic financial analysis. Based on the analysis, the dynamic market risk charges are found to be higher for most of the assets classes during the crisis period compared to the normal period. As the ups and downs of the market conditions significantly affect the percentage of risk charge for market risks, it can be concluded that the fixed pre-determined percentage is not a practical measure.
| Published in | International Journal of Economics, Finance and Management Sciences (Volume 1, Issue 3) |
| DOI | 10.11648/j.ijefm.20130103.17 |
| Page(s) | 175-180 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Risk-Based Capital, Market Risk, Pre-Determined Percentage, Percentage Return, Dynamic Risk Charge
| [1] | D. M. Jaffee, and T. Russell, "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Journal of Risk and Insurance, 205-230, 1997. |
| [2] | D. G. Hartman, P. Braithwaite, R. P. Butsic and S. Feldblum, "Property-Casualty Risk-Based Capital Requirement-A conceptual Framework," 1992. |
| [3] | J. D. Cummins and B. Venard, Handbook of International Insurance Between Global Dynamics and Local Contingencies. Springer, 2007. |
| [4] | J. Carson and R. Hoyt, "Evaluating the Risk of Life Insurer Insolvency: Implications from the US for the European Union," Journal of Multinational Financial Management, 297-314, 2000. |
| [5] | J. D. Cummins, S. E. Harrington and R. Klein, "Insolvency Experience, Risk-Based Capital and Prompt Corrective Action in Property-Liability Insurance," Journal of Banking and Finance, 511-527, 1995. |
| [6] | R. W. Klein, "The Growing Sophistication of Solvency Policing Tools: From IRIS to Accreditation and Beyond," Journal of Insurance Regulation, 2000. |
| [7] | D. R. Anderson, "The Use of Event History Analysis to Examine Insurer Insolvencies," Journal of Risk and Insurance, 1995. |
| [8] | Y. Iyun, "Risk Based Capital in the US and Elsewhere," Presented to the Israel Associations of Actuaries, 2005. |
| [9] | A. Sandstrom, Solvency: Models, Assessment and Regulation. Chapman & Hall/ CRC, 2006. |
| [10] | Z. Wiener, "Solvency II and the Solvency Capital Requirement for Insurance Firms in Israel," Israel Economic Review, 33-53, 2007. |
| [11] | J. R. Lebens and F. Morin, "Review and Comparison of Rating Agency Capital Models," Casualty of Actuaries, 2006. |
| [12] | N. Hooker, R. Bulmer, S. Cooper, P. Hinton, A. Newman, T. Silverman et al., "Capital Requirements and Risk-Based Capital," Presented to General Insurance Convention, 1994. |
| [13] | K. Anderson, "Measuring Risk-Based Capital. Honours Project," Paper 65, http://digitalcommons.iwu.edu_econ_honproj/65, 1994. |
| [14] | K. M. Ostaszewski, "Applications of Resampling Methods in Dynamic Financial Analysis," Proceedings of the Casualty Actuarial Society Forum, 169-206, 1998. |
| [15] | N. A. Rahim and F. H. Tafri, "Measuring Risk Charge for Market Risk," Proceeding of the International Conference on Science and Social Research (ICSSR), 2010. |
APA Style
Norhana Abd. Rahim, Fauziah Hanim Tafri. (2013). Measuring Dynamic Market Risk Charge for Market Risks. International Journal of Economics, Finance and Management Sciences, 1(3), 175-180. https://doi.org/10.11648/j.ijefm.20130103.17
ACS Style
Norhana Abd. Rahim; Fauziah Hanim Tafri. Measuring Dynamic Market Risk Charge for Market Risks. Int. J. Econ. Finance Manag. Sci. 2013, 1(3), 175-180. doi: 10.11648/j.ijefm.20130103.17
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.ijefm.20130103.17,
author = {Norhana Abd. Rahim and Fauziah Hanim Tafri},
title = {Measuring Dynamic Market Risk Charge for Market Risks},
journal = {International Journal of Economics, Finance and Management Sciences},
volume = {1},
number = {3},
pages = {175-180},
doi = {10.11648/j.ijefm.20130103.17},
url = {https://doi.org/10.11648/j.ijefm.20130103.17},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20130103.17},
abstract = {An insurance company is significantly affected by market risks. In many current risk-based capital models, the market risk capital charge is determined by applying the fixed pre-determined percentage to the annual statement values regardless of market conditions. Many questions have been raised as to whether the fixed pre-determined percentage is the accurate measure of market risks. In response to this problem, this paper undertakes to determine a suitable percentage for the market risks faced by life insurers in Malaysia. The data involved in this paper are Kuala Lumpur Composite Index (KLCI), Malaysia Bond Index, foreign exchange rates and Housing Price Index (HPI) for year 2004 to 2009. The volatility model is used as proxy to measure the market risk charges. Then, a simulation is run to calculate the dynamic risk charges of market risks by adopting a dynamic financial analysis. Based on the analysis, the dynamic market risk charges are found to be higher for most of the assets classes during the crisis period compared to the normal period. As the ups and downs of the market conditions significantly affect the percentage of risk charge for market risks, it can be concluded that the fixed pre-determined percentage is not a practical measure.},
year = {2013}
}
TY - JOUR T1 - Measuring Dynamic Market Risk Charge for Market Risks AU - Norhana Abd. Rahim AU - Fauziah Hanim Tafri Y1 - 2013/07/30 PY - 2013 N1 - https://doi.org/10.11648/j.ijefm.20130103.17 DO - 10.11648/j.ijefm.20130103.17 T2 - International Journal of Economics, Finance and Management Sciences JF - International Journal of Economics, Finance and Management Sciences JO - International Journal of Economics, Finance and Management Sciences SP - 175 EP - 180 PB - Science Publishing Group SN - 2326-9561 UR - https://doi.org/10.11648/j.ijefm.20130103.17 AB - An insurance company is significantly affected by market risks. In many current risk-based capital models, the market risk capital charge is determined by applying the fixed pre-determined percentage to the annual statement values regardless of market conditions. Many questions have been raised as to whether the fixed pre-determined percentage is the accurate measure of market risks. In response to this problem, this paper undertakes to determine a suitable percentage for the market risks faced by life insurers in Malaysia. The data involved in this paper are Kuala Lumpur Composite Index (KLCI), Malaysia Bond Index, foreign exchange rates and Housing Price Index (HPI) for year 2004 to 2009. The volatility model is used as proxy to measure the market risk charges. Then, a simulation is run to calculate the dynamic risk charges of market risks by adopting a dynamic financial analysis. Based on the analysis, the dynamic market risk charges are found to be higher for most of the assets classes during the crisis period compared to the normal period. As the ups and downs of the market conditions significantly affect the percentage of risk charge for market risks, it can be concluded that the fixed pre-determined percentage is not a practical measure. VL - 1 IS - 3 ER -
Information
Email: