Enhancing Insurer Portfolio Resilience and Capital Efficiency with Green Bonds: A Framework Combining Dynamic R-vine Copulas and Tail Risk Modeling

This study develops an integrated risk modeling framework to assess capital adequacy and optimize portfolio performance for Thai life and non-life insurers. Combining ARMA–GJR–GARCH models with skewed Student-t innovations, extreme value theory, and dynamic R-vine copulas captures volatility, tail risks, and evolving asset interdependencies. Using daily data from 2014 to 2024, the models generate value-at-risk forecasts and rolling Sharpe ratios for portfolios with and without green bonds. The results show that green bond inclusion improves risk-adjusted returns and reduces capital requirements, particularly for life insurers, aligning with their long-term solvency mandates. Although a greenium effect is not clearly observed relative to Thai sovereign bonds, green bonds enhance diversification within a multivariate framework. These findings highlight the importance of evaluating capital requirements at the portfolio level and suggest that regulators incorporate ESG considerations into supervisory investment guidelines to strengthen financial resilience and align the insurance sector with Thailand’s sustainable finance goals.