Premiums Receivable Credit Risk Measurement In Property Insurance Company Based On Copula

In 2008, the credit risk attracted worldwide attention due to the global financial crisis triggered by the subprime mortgage crisis in the United States. The governments and the financial institutions including insurance corporations in the world are actively considering how to effectively measure and prevent credit risk. Credit risks display non-linear, non-symmetric and tail dependence.Measuring default correlation is one of the important elements in credit risk management.But, the linear correlation coefficient has been no longer suit to describe the default correlation of credit risk. Copula function can be used to capture the complex part of default correlation, particularly in the tail dependence.This paper choose premium receivable credit risk as analysis focus and consider the default of the insurance agents is the first reason of the premiums receivable, which is one of the most important credit risks in domestic insurance companies.To better measure the correlation among the premium receivable credit risk, two types of Copula fuctions are adopt to calculate capital of the credit risk in different business lines, as well as the one for whole property insurance company.The research results reveal that Copula functions capture the correlation among the factors and different business lines,the capital of the company turn to a large number. Compared to Gaussian Copula, t-copula has advantage in capturing the tail dependence. The data give us the information that the property insurance company suffered from many losses caused by the premiums receivable credit risk, but the losses of different business lines were different. The loss of business property insurance is far beyond the summation of all the other business lines. Even occupying the majority of total premiums, auto insurance needs very small capital.So the property insurance company should adjust business structure based on the risk among different business lines.The last part of this paper gives the property insurance company some proposals on how to control the premiums receivable credit risk, on the purpose of a better management of the credit risk.