Fundamental Definition of the Solvency Capital Requirement in Solvency Ii

Christiansen, Marcus C.; Niemeyer, Andreas

doi:10.1017/asb.2014.10

Cited by 43 publications

(27 citation statements)

References 18 publications

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“…It is typically derived by applying a stochastic balance sheet 2 For more details concerning the definition of SCR see Christiansen and Niemeyer (2014). 3 We do not address the allowance of ancillary own funds and eligibility restrictions under the Solvency II framework.…”

Section: General Definitions Of Solvency IImentioning

confidence: 99%

Surrender Risk in the Context of the Quantitative Assessment of Participating Life Insurance Contracts under Solvency II

Burkhart¹

2018

Risks

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Participating life insurance contracts entitle the policyholder to participate in the company's annual surplus. Typically, they are also equipped with a surrender option that allows the policyholder to terminate the contract prior to maturity, receiving a predetermined surrender value. The option interacts with (often cliquet-style) interest guarantees that are a key feature of traditional participating contracts. Surrender options can considerably affect an insurer's liabilities and bear material risks. This paper addresses the recognition of those risks in the quantitative assessment of a heterogeneous insurance portfolio under Solvency II, taking into account the complex interrelation between minimum interest guarantees, reserving requirements, and profit sharing. The lapse risk module of the Solvency II standard formula requires the identification of portfolio segments that are exposed to a specific change of surrender rates (long-term increase/decrease, one-off increase). We provide a heuristic that identifies homogeneous risk groups in the sense that the respective stress would increase the insurer's liabilities. Our approach can be used to derive an appropriate segmentation in practical applications. We further analyze implications of the segmentation on the Risk Margin (as part of the Technical Provisions under Solvency II) and discuss consequences of policyholder options on the calculation of Going Concern Reserve and Surplus Funds. To illustrate our findings, we set up a stochastic balance sheet and cash flow projection model for a stylized life insurance company. We conclude that current methods used for practical applications underestimate surrender risk under Solvency II and that the proposed modeling refinements may improve the appropriateness of solvency ratios for participating business.

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Section: General Definitions Of Solvency IImentioning

confidence: 99%

Surrender Risk in the Context of the Quantitative Assessment of Participating Life Insurance Contracts under Solvency II

Burkhart¹

2018

Risks

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“…A partial internal model may better account for the actual risks and specific characteristics of particular infrastructure investments. Christiansen and Niemeyer (2014) focus on the specific inconsistency in the Solvency Capital Requirement (SCR) in Solvency II. Although market risk is assumed minimized in the minimal SCR interpretation of Recital 64, it is usually much higher than the assumed minimized value.…”

Section: Risk Valuationmentioning

confidence: 99%

Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2014 Update

Eling

Jia

2017

Risk Manage Insurance Review

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This article discusses the main results of the Casualty Actuarial Society Risk Premium Project 2014 update. It reviews the recent research developments in the process of nonlife risk assessment. Of special note, systemic risk continuously attracts a great deal of attention. In the past year, reinsurance studies have increased significantly, driven by progress in optimal reinsurance design and reinsurance asymmetric information. Both topics show the academic reflection of financial crisis in the field of risk and insurance. The evaluation of reserves and the methods mitigating asymmetric information have also received a great deal of attention.

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“…As observed by Zhou and Li [27], the profit margin, which an insurance company taking on risk must include in its insurance premiums, should typically be no less than the risk margin. However, an exact computation of the RM would require the determination of SCR t , conditional on the mortality evolution up to time t (see Christiansen and Niemeyer [10] for the SCR definitions for future points in time). For practical purposes the computation of SCR future values is too complex, so that simplifications are needed (Börger [5]).…”

Section: Pricing S-forwards Via Risk Marginmentioning

confidence: 99%

Maximum Market Price of Longevity Risk Under Solvency Regimes: The Case Of Solvency II

Levantesi¹,

Menzietti²

2017

Preprint

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Longevity risk constitutes an important risk factor for life insurance companies and it can be managed through longevity-linked securities. The market of longevity-linked securities is at present far from being complete and does not allow to find a unique pricing measure. We propose a method to estimate the maximum market price of longevity risk depending on the risk margin implicit within the calculation of the technical provisions as defined by Solvency II. The maximum price of longevity risk is determined for a survivor forward (S-forward), an agreement between two counterparties to exchange at maturity a fixed survival-dependent payment for a payment depending on the realized survival of a given cohort of individuals. The maximum prices determined for the S-forwards can be used to price other longevity-linked securities, such as q-forwards. The Cairns-Blake-Dowd model is used to represent the evolution of mortality over time, that combined with the information on the risk margin, enables us to calculate upper limits for the risk-adjusted survival probabilities, the market price of longevity risk and the S-forward prices. Numerical results can be extended for the pricing of other longevity-linked securities.

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Fundamental Definition of the Solvency Capital Requirement in Solvency Ii

Cited by 43 publications

References 18 publications

Surrender Risk in the Context of the Quantitative Assessment of Participating Life Insurance Contracts under Solvency II

Surrender Risk in the Context of the Quantitative Assessment of Participating Life Insurance Contracts under Solvency II

Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2014 Update

Maximum Market Price of Longevity Risk Under Solvency Regimes: The Case Of Solvency II

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