scholarly journals A Bridge between Local GAAP and Solvency II Frameworks to Quantify Capital Requirement for Demographic Risk

Risks ◽  
2021 ◽  
Vol 9 (10) ◽  
pp. 175
Author(s):  
Gian Paolo Clemente ◽  
Francesco Della Corte ◽  
Nino Savelli
Keyword(s):  
Life Insurance ◽  
Random Variable ◽  
Mortality Rates ◽  
Solvency Ii ◽  
Capital Requirement ◽  
Insurance Contracts ◽  
Financial Conditions ◽  
Accounting Principles ◽  
Demographic Risk

The aim of this paper is to provide a stochastic model useful for assessing the capital requirement for demographic risk in a framework coherent with the Solvency II Directive. The model extends to the market consistent context classical methodologies developed in a local accounting framework. The random variable demographic profit, defined in literatue under local accounting principles, is indeed analysed in a Solvency II framework. We provide a unique formulation for different non-participating life insurance contracts and we prove analytically that the valuation of demographic profit can be significantly affected by the financial conditions in the market. Regarding this topic, we implement the Vašíček model to add randomness to risk-free rates. A case study has also been developed considering a portfolio of life insurance contracts. Results prove the effectiveness of the model in highlighting the main drivers of capital requirement evaluation (e.g., the volatility of both mortality rates and risk-free rates), also compared to the local GAAP framework.

scholarly journals Mortality data reliability in an internal model

2020 ◽  
Vol 14 (2) ◽  
pp. 420-444
Author(s):  
Fabrice Balland ◽  
Alexandre Boumezoued ◽  
Laurent Devineau ◽  
Marine Habart ◽  
Tom Popa
Keyword(s):  
Data Quality ◽  
Internal Model ◽  
Mortality Rates ◽  
Solvency Ii ◽  
West Germany ◽  
Mortality Data ◽  
Longevity Risk ◽  
Capital Requirement ◽  
Stochastic Mortality ◽  
The Impact

AbstractIn this paper, we discuss the impact of some mortality data anomalies on an internal model capturing longevity risk in the Solvency 2 framework. In particular, we are concerned with abnormal cohort effects such as those for generations 1919 and 1920, for which the period tables provided by the Human Mortality Database show particularly low and high mortality rates, respectively. To provide corrected tables for the three countries of interest here (France, Italy and West Germany), we use the approach developed by Boumezoued for countries for which the method applies (France and Italy) and provide an extension of the method for West Germany as monthly fertility histories are not sufficient to cover the generations of interest. These mortality tables are crucial inputs to stochastic mortality models forecasting future scenarios, from which the extreme 0.5% longevity improvement can be extracted, allowing for the calculation of the solvency capital requirement. More precisely, to assess the impact of such anomalies in the Solvency II framework, we use a simplified internal model based on three usual stochastic models to project mortality rates in the future combined with a closure table methodology for older ages. Correcting this bias obviously improves the data quality of the mortality inputs, which is of paramount importance today, and slightly decreases the capital requirement. Overall, the longevity risk assessment remains stable, as well as the selection of the stochastic mortality model. As a collateral gain of this data quality improvement, the more regular estimated parameters allow for new insights and a refined assessment regarding longevity risk.

scholarly journals Modelling Outstanding Claims with Mixed Compound Processes in Insurance

2019 ◽  
Vol 12 (3) ◽  
pp. 123
Author(s):  
Gian Paolo Clemente ◽  
Nino Savelli ◽  
Diego Zappa
Keyword(s):  
Solvency Ii ◽  
Capital Requirement ◽  
General Insurance ◽  
Run Off ◽  
Mixed Poisson Process ◽  
Mixed Compound ◽  
Future Loss ◽  
Reserve Capital ◽  
The Impact

In general insurance, measuring the uncertainty of future loss payments and estimating the claims reserve are primary goals of actuaries. To deal with these tricky tasks, a broad literature is available on deterministic and stochastic approaches, most of which aims at straightforwardly modelling the overall claims reserve. In this paper by an extended, very general and reproducible case-study, we analyze the reserving process by attributing to each cell of the lower part of the run-off triangle a Compound mixed Poisson Process, calibrated upon both the numbers of claims and future average costs and considering as well the dependence among incremental claims. We provide analytically the moments of both incremental payments and the total reserve. Furthermore, we accordingly consider the probability distribution of the claims reserve, which is necessary for the assessment of the Risk Reserve capital requirement in a Solvency II framework. To test the impact of the model under different scenarios, insurers and lines of business, the case study is thoroughly analyzed by exploiting the Fisher-Lange average cost method.

PROBABILITY OF SUFFICIENCY OF SOLVENCY II RESERVE RISK MARGINS: PRACTICAL APPROXIMATIONS

2017 ◽  
Vol 47 (3) ◽  
pp. 737-785 ◽  
Author(s):  
Eric Dal Moro ◽  
Yuriy Krvavych
Keyword(s):  
Life Insurance ◽  
Confidence Level ◽  
Cost Of Capital ◽  
Cash Flows ◽  
Solvency Ii ◽  
Risk Profile ◽  
List Type ◽  
Risk Margin ◽  
Insurance Contracts ◽  
The Cost

AbstractThe new Solvency II Directive and the upcoming IFRS 17 regime bring significant changes to current reporting of insurance entities, and particularly in relation to valuation of insurance liabilities. Insurers will be required to valuate their insurance liabilities on a risk-adjusted basis to allow for uncertainty inherent in cash flows that arise from the liability of insurance contracts. Whilst most European-based insurers are expected to adopt the Cost of Capital approach to calculate reserve risk margin — the risk adjustment method commonly agreed under Solvency II and IFRS 17, there is one additional requirement of IFRS 17 to also disclose confidence level of the risk margin.Given there is no specific guidance on the calculation of confidence level, the purpose of this paper is to explore and examine practical ways of estimating the risk margin confidence level measured by Probability of Sufficiency (PoS). The paper provides some practical approximation formulae that would allow one to quickly estimate the implied PoS of Solvency II risk margin for a given non-life insurance liability, the risk profile of which is specified by the type and characteristics of the liability (e.g. type/nature of business, liability duration and convexity, etc.), which, in turn, are associated with•the level of variability measured by Coefficient of Variation (CoV);•the degree of Skewness per unit of CoV; and•the degree of Kurtosis per unit of CoV2.The approximation formulae of PoS are derived for both the standalone class risk margin and the diversified risk margin at the portfolio level.

scholarly journals The impact of covid-19 on global insurance market

2021 ◽  
Vol 342 ◽  
pp. 08012
Author(s):  
Ana Preda ◽  
Mirela Popescu ◽  
Imola Drigă
Keyword(s):  
Life Insurance ◽  
Mortality Rates ◽  
Insurance Markets ◽  
Insurance Sector ◽  
Insurance Contracts ◽  
Developed Markets ◽  
Life Insurers ◽  
Growth Prospects ◽  
The Impact

The purpose of the paper is to present the changes occurred on global insurance markets during the current pandemic situation. The effects are largely felt through asset risks, weaker premium growth prospects, and also insurers’ long-term investment. Developed markets, particularly life ones, are likely to shrink in real terms as a result of the economic slowdown. Higher mortality rates due to the coronavirus pandemic are affecting the bottom lines of many life insurers. The main trends in this sector in last years, is based on the most important aspects such as, written premiums, and benefits paid, types of the life insurance contracts and density and penetration degree of the life insurance sector.

scholarly journals An optimal reinsurance simulation model for non-life insurance in the Solvency II framework

2021 ◽  
Author(s):  
Alberto Zanotto ◽  
Gian Paolo Clemente
Keyword(s):  
Simulation Model ◽  
Life Insurance ◽  
Pareto Frontier ◽  
Solvency Ii ◽  
Portfolio Performance ◽  
Multi Objective Optimization ◽  
Optimal Reinsurance ◽  
Solvency Ratio ◽  
Selection Of

AbstractIn this paper, we propose an approach to explore reinsurance optimization for a non-life multi-line insurer through a simulation model that combines alternative reinsurance treaties. Based on the Solvency II framework, the model maximises both solvency ratio and portfolio performance under user-defined constraints. Data visualisation helps understanding the numerical results and, together with the concept of the Pareto frontier, supports the selection of the optimal reinsurance program. We show in the case study that the methodology can be easily restructured to deal with multi-objective optimization, and, finally, the selected programs from each proposed problem are compared.

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