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Why does the risk margin increase with increased reinsurer default risk?

Discussion in 'SA2' started by curiousactuary, May 28, 2020.

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  1. curiousactuary

    curiousactuary Member

    Why does the risk margin increase with increased reinsurer default risk. I understand the SCR will increase if the capital requirements from the default risk module increase. Is the reason why the risk margin increases is because reinsurer default risk is classed as a non-hedgeable risk?
     
    curiousactuary, May 28, 2020
    #1
  2. mugono

    mugono Ton up Member

    yes
     
    mugono, May 28, 2020
    #2
  3. Em Francis

    Em Francis ActEd Tutor Staff Member

    Yes, counterparty default risks are classified as non-hedgeable, along with residual market risks, underwriting risks and operational risks, as there is not deemed to be a sufficient deep and liquid market to hedge them.
     
    Em Francis, May 29, 2020
    #3

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