Estimation of the value at risk for insurance companies in the stock exchange with a capital requirement approach plus additional amount (observer limits) and economic capital approach

Document Type : Original Article

Authors
Mahdi Abbasi 1
Babak Jamshidinavid 2
Mehrdad GhanbarI 2
Alireza Moradi 3
1 Ph.D. Student, Department of Financial Management, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran
2 Assistant Professor, Department of Accounting, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran.
3 Assistant Professor, Department of Economics, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran.
10.30495/jik.2024.23759
Abstract
Failure to pay attention to the issue of capital adequacy or accepted risks can plunge the insurance company into bankruptcy. The main issue is, what is the capital level of insurance companies to meet the expectations of shareholders and the regulator? For this purpose, the insurance companies of Tehran Stock Exchange during the years 1390-1391 have been included in the statistical population of this study and historical calculation and Monte Carlo methods have been used to calculate the risk value. According to the historical simulation method, there is a 1% probability that the insurance company will lose more than 2.02% of its asset value. Meanwhile, the value at risk by the Monte Carlo method also indicates that for one million Tomans of investment, at the 99% confidence level, the value at risk will be equal to 3.28%. In general, based on the cost-benefit method, and the comparison of the obtained results, the amount of capital considered by the shareholders has been proposed according to the expected return of 1.25 to 1.3 of the existing capital. However, the amount of capital required by the regulator, according to the level of accepted risks and calculated based on financial wealth, is equal to about 1.3 to 1.4 times the existing capital. Finally, as a final result, the target capital is between 1.25 and 1.4 times the existing capital of the capital that is expected to meet the expectations of shareholders and the regulator.
Keywords
Value at Risk
Monte Corlo
Historical Simulation
Optimal Capital
Stock Exchange
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