Correlation Matrix

Correlation Matrix

What is a Correlation Matrix?

A correlation matrix is a table showing correlation coefficients between variables. Each cell in the table shows the correlation between two variables. Most often the matrix is symmetric. Further to that a ratio of 100% means perfect correlation whereas 0% means no correlation.

Regarding Solvency II purposes the official source is the Commission Delegated Regulation 2015/35, and the reason that these are used under Solvency II is to avoid double counting of risks. For easy reference the most important ones are listed below.

 

BSCR Market CDR Life Health Non-Life
Market 100% 25% 25% 25% 25%
CDR 25% 100% 25% 25% 50%
Life 25% 25% 100% 25% 0%
Health 25% 25% 25% 100% 0%
Non-Life 25% 50% 0% 0% 100%

 

Counterparty Default Risk Type 1 Type 2
Type 1 exposure 100% 75%
Type 2 exposure 75% 100%

 

Life Underwriting Mortality Longevity Disability Lapse Expenses Revision CAT
Mortality 100% -25% 25% 0% 25% 0% 25%
Longevity -25% 100% 0% 25% 25% 25% 0%
Disability 25% 0% 100% 0% 50% 0% 25%
Lapse 0% 25% 0% 100% 50% 0% 25%
Expenses 25% 25% 50% 50% 100% 50% 25%
Revision 0% 25% 0% 0% 50% 100% 0%
CAT 25% 0% 25% 25% 25% 0% 100%

 

Health Underwriting Health SLT Health Non-SLT Health CAT
Health SLT 100% 50% 25%
Health Non-SLT 50% 100% 25%
Health CAT 25% 25% 100%

 

Health-SLT Mortality Longevity Disability/ morbidity Lapse Expense Revision
Mortality 100% -25% 25% 0% 25% 0%
Longevity -25% 100% 0% 25% 25% 25%
Disability/ morbidity 25% 0% 100% 0% 50% 0%
Lapse 0% 25% 0% 100% 50% 0%
Expense 25% 25% 50% 50% 100% 50%
Revision 0% 25% 0% 0% 50% 100%

 

Health Non-SLT NL-premium NL-lapse
NL-premium 100% 0%
NL-lapse 0% 100%

 

Non-Life Underwriting NL-premium NL-lapse NL-CAT
NL-premium 100% 0% 25%
NL-lapse 0% 100% 0%
NL-CAT 25% 0% 100%

 

There is also correlations matrixes between lines of business but this is the subject of another post.

 

 

 

 

 

 

 

 

Leave a Reply

Close Menu