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Solvency assessment within the ORSA framework: issues and quantitative methodologies

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  • Julien Vedani

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Laurent Devineau

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

The implementation of the Own Risk and Solvency Assessment is a critical issue raised by Pillar II of Solvency II framework. In particular the Overall Solvency Needs calculation left the Insurance companies to define an optimal entity-specific solvency constraint on a multi-year time horizon. In a life insurance society framework, the intuitive approaches to answer this problem can sometimes lead to new implementation issues linked to the highly stochastic nature of the methodologies used to project a company Net Asset Value over several years. One alternative approach can be the use of polynomial proxies to replicate the outcomes of this variable throughout the time horizon. Polynomial functions are already considered as efficient replication methodologies for the Net Asset Value over 1 year. The Curve Fitting and Least Squares Monte-Carlo procedures are the best-known examples of such procedures. In this article we introduce a possibility of adaptation for these methodologies to be used on a multi-year time horizon, in order to assess the Overall Solvency Needs.

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  • Julien Vedani & Laurent Devineau, 2012. "Solvency assessment within the ORSA framework: issues and quantitative methodologies," Working Papers hal-00744351, HAL.
    • Handle: RePEc:hal:wpaper:hal-00744351
    Note: View the original document on HAL open archive server: https://hal.science/hal-00744351v2
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    References listed on IDEAS

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    6. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
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    Cited by:

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    2. Aur'elien Alfonsi & Adel Cherchali & Jose Arturo Infante Acevedo, 2020. "Multilevel Monte-Carlo for computing the SCR with the standard formula and other stress tests," Papers 2010.12651, arXiv.org, revised Apr 2021.
    3. Piotr Komański & Oskar Sokoliński, 2015. "Least-Squares Monte Carlo Simulation for Time Value of Options and Guarantees Calculation," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 41.
    4. Geoffrey Nichil & Pierre Vallois, 2019. "Solvency Need Resulting from Reserving Risk in a ORSA Context," Methodology and Computing in Applied Probability, Springer, vol. 21(2), pages 567-592, June.

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