Modeling non-life insurance risks and capital requirements in Iran's insurance company: Coppola's approach

Aghilifar, Z.; Abtahi, S. Y.; Adeaskarz, G.; Khjajemahmoodabadi, H.

doi:10.22056/ijir.2025.01.03

Document Type : Original Research Paper

Authors

¹ Department of Financial Engineering, Faculty of Accounting and Management, Yazd Branch, Islamic Azad University, Yazd, Iran

² Department of Financial Management, Faculty of Accounting and Management, Yazd Branch, Islamic Azad University, Yazd, Iran

https://doi.org/10.22056/ijir.2025.01.03

Abstract

BACKGROUND AND OBJECTIVES: The purpose of this paper is to investigate the sensitivity of the required capital to the dependence structure among non-life insurance claims in multivariate environments. Inthe beginning, dependency modeling was carried out in a real environment using the database related to monthly claims (without recycling) resulting from five types of non-life insurance in Iran Insurance Company, including engineering, liability, third party, automobile insurance, and fire insurance.
METHODS:The data includes the severity of claims in each field and it was collected during the monthly period of 2011:03-2024:02.Then, the parameters of D-vine copula are estimated among the claims by five types of non-life insurance, and goodnessof fit tests are performed to conclude the optimal copula.The multivariate distribution is simulated by a combination of univariate marginal distributions and bivariate copulas.Finally, the estimation of risk-taking capital using VaR and TVaR has been done on simulated total losses according to their weight, and a comparative study has been done using independent copula.
FINDINGS: The results show that paying attention to the implicit dependence among losses significantly affects the total risk capital.This result is confirmed by the estimated capital requirement values.In fact, paying attention to the implicit dependence among insurance fields leads to a capital reduction of 1.5% for VaR and 3.9% for TVaR.
CONCLUSION: The choice of non-life insurance risk dependency modeling is very important and paying attention to non-linear dependencies in the structure of various insurance branches can reveal the benefits of diversification to the insurance portfolio of companies leading to measuring the amount of benefits from diversification based on the correct selection of non-life insurance risk dependency models. This is an issue that needs to be considered in choosing the portfolio of insurance companies.

Keywords

Main Subjects

Economics of finance / insurance

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Iranian Journal of Insurance Research

Modeling non-life insurance risks and capital requirements in Iran's insurance company: Coppola's approach

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Volume 14, Issue 1 - Serial Number 51
December 2025
Pages 37-48

Modeling non-life insurance risks and capital requirements in Iran's insurance company: Coppola's approach

References

References

Letters to Editor

Send comment about this article

Volume 14, Issue 1 - Serial Number 51December 2025Pages 37-48

Volume 14, Issue 1 - Serial Number 51
December 2025
Pages 37-48