The one-year non-life insurance risk

A major part of the literature on non-life insurance reserve risk has been devoted to the ultimo risk, the risk in the full run-off of the liabilities. This is in contrast to the short time horizon in internal risk models at insurance companies, and the one-year risk perspective taken in the Solvency II project of the European Community. aper aims at clarifying the one-year risk concept and describing simulation approaches, in particular for the one-year reserve risk. We also discuss the one-year premium risk and its relation to the premium reserve. y, we initiate a discussion on the role of risk margins and discounting for the reserve and premium risk, with focus on the Cost-of-Capital method. We show that risk margins do not affect the reserve risk and show how reserve duration can be used for easy calculation of risk margins. 11Any opinions expressed in this paper are the authors’ own, and do not constitute policy of our employers.