A synthetic model for asset-liability management in life insurance, and analysis of the SCR with the standard formula
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Publication:2219626
Abstract: The aim of this paper is to introduce a synthetic ALM model that catches the main specificity of life insurance contracts. First, it keeps track of both market and book values to apply the regulatory profit sharing rule. Second, it introduces a determination of the crediting rate to policyholders that is close to the practice and is a trade-off between the regulatory rate, a competitor rate and the available profits. Third, it considers an investment in bonds that enables to match a part of the cash outflow due to surrenders, while avoiding to store the trading history. We use this model to evaluate the Solvency Capital Requirement (SCR) with the standard formula, and show that the choice of the interest rate model is important to get a meaningful model after the regulatory shocks on the interest rate. We discuss the different values of the SCR modules first in a framework with moderate interest rates using the shocks of the present legislation, and then we consider a low interest framework with the latest recommandation of the EIOPA on the shocks. In both cases, we illustrate the importance of matching cash-flows and its impact on the SCR.
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Cites work
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Cited in
(6)- Economic scenario generators: a risk management tool for insurance
- Multilevel Monte Carlo for computing the SCR with the standard formula and other stress tests
- Analyzing legal regulations in the Norwegian life insurance business using a multistage asset-liability management model
- \texttt{openIRM}: publicly accessible internal risk model of an artificial life insurer for analyzing and benchmarking actuarial methods in the Solvency II setting
- Optimized multi-level Monte Carlo parametrization and antithetic sampling for nested simulations
- A general asset-liability management model for the efficient simulation of portfolios of life insurance policies
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