International Journal of Nonlinear Analysis and Applications

Estimation of VaR in insurance companies listed on the Tehran Stock Exchange with RBC and EC approaches

Document Type : Research Paper

Authors

1 Department of Accountancy and Management, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran

2 Department of Economics, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran

Abstract

The capital level of insurance companies to meet shareholders' and the regulator's expectations is very important. This study was to estimate the VaR (Value at Risk) of insurance companies on the TSE  (Tehran Stock Exchange) with RBC (Risk-Based-Capital)  and EC (Economic Capital) approaches, nine insurance companies in TSE during 2011-2019 were selected. Historical simulation and MCS (Monte Carlo Simulation) methods were used to calculate VaR. In historical simulation, the probability of an insurance company's loss of more than 2.02\% of the asset value is 1\%. Meanwhile, the VaR obtained from MCS, at the confidence level of 99\%, VaR is 3.28\%. In CBA (Cost-Benefit-Analysis), the amount of capital desired by the shareholders is 1.25-1.3 of the existing capital. In SMR (Solvency Margin Ratio) the amount of capital desired by the regulator is 1.3 -1.4 of the existing capital. Finally, the target capital is 1.25-1.4 of the existing capital.

Keywords

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International Journal of Nonlinear Analysis and Applications
Volume 13, Issue 2
July 2022
Pages 1207-1218
  • Receive Date: 04 November 2021
  • Revise Date: 19 December 2022
  • Accept Date: 09 February 2022