The one-year non-life insurance risk

With few exceptions, the literature on non-life insurance reserve risk has been devoted to the ultimo risk, the risk in the full runoff of the liabilities. This is in contrast to the short time horizon in models for the total risk of the insurance company, and in particular the one-year risk perspective taken in the Solvency II project, and in the computation of risk margins with the Cost-of Capital method. This paper aims at clarifying the methodology for the one-year risk; in particular we describe a simulation approach to the one-year reserve risk. We also discuss the one-year premium risk and the premium reserve. Finally, we initiate a discussion on the role of risk margins and discounting for the reserve and premium risk