Allocation of Risk Capital to Insurance Portfolios

The basics of risk capital allocation in insurance industry are introduced: the risk measure and the allocation method: the combination of both of them represents the methodology with which risk capital is allocated to the different parts of the portfolio. The equivalence of some of those principles to the covariance principle is shown. Additionally, on a sample portfolio some principles are compared: The allocation coefficients are computed by simulation in realistic environment and their stability is investigated. The examples reveal, that the influence of a risk measure on the allocation coefficients is larger than those of the allocation method.