Measurement of Operational Value at Risk Earthquake Risk Using Loss Distribution Approach-Aggregation Model Method
Valentin Panggabean

Risk Management, Faculty of Economics and Business , University Of Indonesia
Gedung Prof. Wahjudi Prakarsa
Jl. Salemba Raya No.4, RW.5, Kenari, Kec. Senen, Kota Jakarta Pusat, Daerah Khusus Ibukota Jakarta 10430
valentin.panggabean[at]ui.ac.id

Abstract

Earthquakes may cause a very large impact, both in terms of the amount of loss and the area. The financial impact of a major earthquake can have a long-lasting impact. Therefore, companies need to understand the basic characteristics that exist in earthquake events. This research measures the Operational Value at Risk (VaR) for claim catastrophe Insurance using data from statistical cession (MAIPARK) for the year 2014-2021. Calculation of operational risk with loss distribution approach aggregation model (Monte Carlo Simulation) aims to estimate capital reserve estimates based on the frequency distribution and severity distribution of historical data. The results showed that the frequency distribution of earthquake insurance claim losses followed a geometric distribution pattern, while the severity distribution showed an exponential distribution pattern. With 95% confidence level, the operational risk VaR value is IDR 2,792,721,528,565.80 and the validity test or back testing uses the Kupiec test with one error and the model is acceptable.

Keywords: value-at-risk- operational risk- convolution- insurance business risk- frequency and severity distribution- Loss distribution approach-aggregation model.

Topic: Strategic Management and Ecosystem Business