Systemic Risk Asymptotics in a Renewal Model with Multiple Business Lines and Heterogeneous Claims

Abstract: Systemic risk is receiving increasing attention in the insurance industry, as these risks can have severe impacts on the entire financial system. In this paper, we propose a multi-dimensional L/'{e}vy process-based renewal risk model with heterogeneous insurance claims, where every dimension indicates a business line of an insurer. We use the systemic expected shortfall (SES) and marginal expected shortfall (MES) defined with a Value-at-Risk (VaR) target level as the measurement of systemic risks. Assuming that all the claim sizes are pairwise asymptotically independent (PAI), we derive asymptotic formulas for the tail probabilities of discounted aggregate claims and total loss, which holds uniformly for all time horizons. We further obtain the asymptotics of the above systemic risk measures. The main technical issues involve the treatment of uniform convergence in the dynamic time setting. Finally, we conduct a Monte Carlo numerical study and verify that our asymptotics are accurate and convenient in computation.