Risk based capital modelling for P&C insurers and financial sensitivity

In this contribution we implement a simulation model based on an Internal Risk Model approach, aimed to assess the default risk for Property & Casualty insurers over a short-term time horizon. The proposed framework includes a stochastic model for the financial market and dynamic portfolio strategies. Further, we analyse some risk-based capital requirements by means of risk measures such as VaR and the ruin probability, focusing in particular on the impact of different portfolio strategies, time horizons and levels of confidence. The paper aims to contribute to the current debate concerning the development of a general framework for solvency assessment, including the new EU capital requirements to be defined in the Solvency II phase.