VIEWS: 21 PAGES: 1 CATEGORY: Entrepreneurship & Business Planning POSTED ON: 6/29/2011
Capital allocation refers to the private equity fund investors, the return is minus expenses and liabilities, the income earned on investments and capital. Limited partners to recover the capital investment costs to obtain the actual distribution of profits. Limited partnership agreement provides for the right partner to obtain a timetable for capital allocation, also provides for limited partners and general partner of their profits.
Summary: „Approaches of Risk Capital Allocation in Life Insurance Companies: Overview and Case Study“ (Author: Stefanie Wendel) Policyholder premiums invested by an insurance company to have a higher value than claims is crucial to cover business and financial risks of a life insurance company. The difference between the assets and insurance liabilities is the risk capital. With regard to an explicitly chosen risk measure one can analytically and numerically calculate the amount which covers all risks occurring in insurance life business based entering liabilities. After this is done, an important issue is to allocate the overall risk capital to the different business lines of the company. This non-trivial problem includes diversification effects, since the sum of the risk capital of each business line is larger than the risk capital of the company itself. The main task was to give an overview of various risk capital allocation principles and their application. In the first chapter “Theory of Risk Measurement” essential definitions and a critical appreciation of properties is stated. In the following important theorems including the representation theorems of convex and coherent risk measures are gathered. As a consequence examples of widespread risk measures like Value at Risk and Expected Shortfall are examined in the subsequent Chapter “Examples of Risk Measures”. The third Chapter “Capital Allocation Principles” starts with axiomatic fundamentals and desirable properties of capital allocation principles. The work includes naïve allocations, the proportional allocation principle, the covariance principle, the allocation of the same marginal, proportional allocation of the marginals and a capital allocation using Euler’s Rule. After these different allocation principles a game theoretic approach and a capital allocation using transfer instruments are presented. In the following chapter the examined risk capital allocation principles are applied with respect to the risk measures Value at Risk and Expected Shortfall. Within the Chapter “A Numerical Example” an assurance portfolio with 14 life business lines is considered. In a first step the risk capital of the total company is determined and then distributed according to allocation principles as a second step. A conclusion of the thesis is given in the Chapter “Summary”. In practice risk measurement and proper risk capital allocation are challenging tasks with regard to data availability and modeling, since with inadequate data even a sophisticated model will fail. There is no risk capital allocation approach globally applicable to all questions of an insurance company, for instance, a decrease of risk capital cannot uniquely allocated to each business line due to imperfect known correlations between all the business lines in the insurance portfolio. For more information should include duration and maturity considerations of the occurring liabilities. The quality of each allocation principle in practice also depends on the chronology of the business composition over time. A further improving aspect would be the integration of new business. Examinations of the capital allocation principles and risk measures with discrete distribution and non-continuity are very interesting.
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