Titolo della tesi: Risk-mitigation techniques: from (re-)insurance to alternative risk transfer
Insurance risks knowledge is becoming essential for both financial stability and social security purposes, moreover in a country with a very low insurance education
like Italy.
In insurance industry, Solvency II requirements introduced new issues for actuarial risk management in non-life insurance, challenging the market to have a consciousness of its own risk profile, and also investigating the sensitivity of the solvency ratio depending on the insurance risks and technical results on either a
short-term and medium-term perspective.
For this aim, in the present thesis, firstly a partial internal model for underwriting risk is developed for multi-line non-life insurers. Specifically, the risk-mitigation
and profitability impacts of traditional reinsurance in the underwriting risk model are introduced, and a global framework for a feasible application of this model
consistent with a medium-term analysis is provided. Reinsurance have to be considered in the assessment of Non-Life insurers risk profile, with particular regard to
the Solvency II Underwriting Risk because of its impact on business and risk strategy.
Risk mitigation techniques appear as a key driver of Non-Life insurance business as they can change risk profile over either the short-term or medium-term perspective.
They impact the technical result of the year in such a way that it is important to assess how reinsurance strategies decrease the volatility, reducing the capital requirements, but, on the other hand, they also change the mean of distributions in different ways according to the price for risk requested by reinsurers.
At the same time, risk mitigation also influences Non-Life insurance management actions as it can improve business strategy and capital allocation (also in potential
capital recovery plans). Furthermore, the analysis a medium-term capital requirement would ask insurers to have more capital than in a one-year time horizon, and
in this framework risk mitigation effects linked to reinsurance strategies must be assessed on either risk/return perspective trade-off.
On the other hand, (re)insurance can play an active role in mitigating physical risks, and in particular natural catastrophe risks. In this context, as well as in
natural disasters, Alternative Risk Transfer (ART) is becoming a new significant actuarial and capital management tool for insurers and, potentially, for government
measures in recovery actions of economic and social losses in case of natural disasters.
Catastrophe Bonds are insurance-linked securities that have been increasingly used as an alternative to traditional reinsurance for two decades.
In exchange for a Spread over to the risk-free rate, protection is provided against stated perils that could impact the insured portfolio. A broad literature has flourished
to investigate what are the features that significantly influence the Spread, in addition to the portfolio’s expected loss. Almost all proposed models are based on
multivariate linear regression, that has provided satisfactory predictive performanceas well as easily interpretability.
This thesis also explores the use of Machine Learning models in modeling the determinant at issuances, contrasting both their predictive performance and their
interpretability with respect to traditional models. An overview of the economics of CAT bonds, on current literature and on the statistical methodologies will be
provided also.
Aim of this Thesis is to provide a solid framework of insurance risk transfer for both pure underwriting and catastrophe risks, investigating risk transfer practices
from traditional to alternative and most innovative technique. In these fields, firstly a suitable risk model is used in order to describe main impacts on insurance business model. Then, the main innovative alternative risk transfer for catastrophe risks are illustrated and CAT Bond will be adequately described, investigating main pricing
models using a machine learning approach.
Finally, a possible Italian CAT Bond issuance is provided in order to investigate an integrated solution with a traditional reinsurance underlying an alternative risk transfer in order to achieve a public-private partnership to natural catastrophe.