Template-Type: ReDIF-Article 1.0

Author-Name: Dóra Balog
Author-Workplace-Name: Corvinus University of Budapest
Author-Email: dora.balog1@gmail.com
Author-Person: pba886

Title: Capital Allocation in the Insurance Sector

Abstract: Capital allocation plays a key role in the enterprise risk management system of
insurance undertakings: when applied during performance measurement, it creates
a link between risk and business. In addition to performance measurement, capital
allocation may also have a role in pricing decisions and in the preparation of
strategic business decisions. With the entering into force of the Solvency II regulation
the consistent application of capital allocation has become a regulatory expectation
in the insurance sector which lands relevance to our topic. The available literature
is extremely rich; however, the applicable methods have been designed based on
theoretic axioms rather than the needs of the practitioners, so the gap between
theoretic research and real-life application is significant. Our objective is to translate
the rather abstract formulation of the problem of capital allocation, customary in
the literature, to the practical questions arising during implementation by insurance
companies; thereby, providing some guidance for choosing the theoretically
applicable methods. In this study, we will review the issues arising in connection
with the implementation of capital allocation: what needs to be allocated for what
specific purposes and how such allocation should take place.

Classification-JEL: G22, G32, C71
Keywords: capital allocation, insurance, Solvency II Directive
Pages: 74–97
Volume: 16
Issue: 3
Year: 2017
File-URL: http://english.hitelintezetiszemle.hu/letoltes/dora-balog.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:16:y:2017:i:3:p:74-97