Journal of Financial Risk Management, 2015, 4, 158-167 Published Online September 2015 in SciRes. http://www.scirp.org/journal/jfrm http://dx.doi.org/10.4236/jfrm.2015.43013 How to cite this paper: Yildirim, I. (2015). Financial Risk Measurement for Turkish Insurance Companies Using VaR Models. Journal of Financial Risk Management, 4, 158-167. http://dx.doi.org/10.4236/jfrm.2015.43013 Financial Risk Measurement for Turkish Insurance Companies Using VaR Models Ismail Yildirim Department of Finance, Banking and Insurance, Hitit University, Turkey Email: ismailyildirim@hitit.edu.tr Received 14 August 2015; accepted 27 September 2015; published 30 September 2015 Copyright © 2015 by author and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/ Abstract This study aims to measure the foreign exchange risks that the insurance companies are exposed to. In this context, this study analyzes 7 insurance companies listed in Borsa Istanbul (Istanbul Stock Exchange). The foreign exchange risks that the insurance companies are exposed to were measured using VaR models, Historical Simulation and Monte Carlo Simulation methods. Data ob- tained from the analysis show the losses that the insurance companies suffer due to exchange risk. The losses calculated using the Monte Carlo Simulation were found to be greater than the losses calculated using Historical Simulation. Keywords Insurance, Financial Risk, Foreign Exchange Risk, VaR 1. Introduction It is possible to briefly define risk as a liability with potential loss. There are many risks that life insurance and pension companies are exposed to. However, the most significant risks arise from the core business of a com- pany. These are risks that a company undertakes in return for premiums collected as a result of insurance con- tracts. Potential risks most commonly involve such risks. As insurance industry constitutes an important part of the finance system especially in developed countries, it is exposed to financial risks. It is a common practice for insurance companies to invest in several financial assets in order to utilize the insurance premiums they have collected. Therefore, it is inevitable that insurance compa- nies are faced with financial risks. Among the common risks other than insurance transactions that life insurance and pension companies are exposed to, there are financial risks such as interest rate risk, credit risk, liquidity risk, exchange rate risk. In addition, market risk, group risk, operational risk, modeling risk, and regulatory re- strictions risk are also significant when it comes to insurance companies.