Some questions about Solvency II

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Karolien Van Beeck

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Summary Introduction Solvency II Example QIS3 SST Product development Comparison References End

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Context

I Methodology to obtain profitability of new products

I Profitability and Solvency II

I Specifiy Parameters

I Goal: optimal return

I ´and policyholder

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Historic Background

I Solvency II: 3 pilars

I Pillar 1: Quantitative requirements

I Minimal capital requirements

I Solvability capital requirements

I Pillar 2: Supervisor review

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Used methods

I QIS3 and European Embedded Value

I Standard formulas

I SST and European Embedded Value

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Value measurement of the portfolio

I EEV

I 12 Principes

I MCEV (Market Consistent Embedded Value)

I Future cashflows

I Riskfree

I Adapted profitsharing

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Product

I Branch 21 (saving product, universal life type, 0%)

I Profit sharing (added to reserve)

I Death outgo = reserve

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Portfolio and assetmix

I Length contracts 20, 25, 35 year (age at entry. 45, 40, 35)

Total No contracts 10.863 Regular premium e58.504.956 Single premium e82.586.017 Total e141.136.686 I Assetmix: 70/30

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Balancesheet

Ante

Assets e141.136.686

Liabilities e91.572.269

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Overzicht SCR

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Principles

I Apply stresstests

I Extract results

I No reducing effect of future profitsharing

I Reducing effect of future profit sharing

I “VaR”

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SCR

Life Overview Lifemort e216.764 Lifelong e0,00 Lifedis e0,00 Lifelapse e6.142.083 Lifeexp e3.198.187 Liferev e0,00 LifeCAT e240.311 SCRLife e8.249.150 No diversification e9.797.344 Diversifiction effect e1.548.194

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Mkt

en KC

Mkt Overview SCR KC int e113.495.581 e106.788.071 eq e13.549.121 e4.347.010 prop e0,00 e0,00 sp e0,00 e0,00 conc e0,00 e0,00 fx e0,00 e0,00 Mkt e114.301.469 e106.876.511 No diversifivcation e127.044.703 e111.135.080 Diversification effect e12.743.234 e4.258.570

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Summary

I SCR I SCRDef: e0 I SCRLife: e8.249.150 I SCRMkt: e7.424.957 I CoC 6% I e15.600.976 I Economic balance Ante Assets e141.136.686 Liabilities e107.173.245 NAV e33.963.440 I SCR I 9.961.044 I Solvencyratio I 3,41

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Remarks

I Principle I Risk =BSCR - KC I Big SCR I Marketrisk I SCR under QIS3 = SCRMkt−KCMkt= 7.424.957 I Riskmkt= p (SCRint−(KCint)2+ SCReq−KCeq)2= 11.387.255 I QIS4

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Principles

I No future profitsharing

I Market risk: cashflows grouped in timebuckets (diversification)

I “Expected shortfall”

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SST

Life Overview SST-Lmort e289.791 SST-Llong e0,00 SST-Ldis e0,00 SST-Llapse e8.743.955 SST-Lexp e3.930.842 SST-Lex-opt e0,00 SST-Lreact e0,00 SSTLife e9.591.259 No diversication e12.964.589 Diversification effect e3.373.330

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I No timebuckets

I Symmetric testing less usefull

I Results Overview SST-Mint e15.306.455 SST-Meq e10.576.296 SSTMarket e20.202.765 No diversification e25.781.620 Diversification-effect e5.578.855

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Summary

I SCR I SSTLife: e9.591.259 I SSTMarkete20.202.765 I CoC 6% I e18.353.402 I Economic Balance Ante Assets e141.136.686 Liabilities e109.925.671 NAV e31.211.015 I SCR I e22.363.898 I Solvencyratio I 1,77

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I Higher SCR’s

I SST less appropriate because of profitsharing

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Changing Assetsmix

I Assetsmix 60/40 I Consequence on SCR (QIS3-methodology) I SCRDef: e0 I SCRLife: e8.249.150 I SCRMkt: e15.235.871 I CoC 6% I e16.153.843 I Economic balance Ante Assets e141.136.686 Liabilities e107.726.111 NAV e33.410.574 I Solvencyratio I 1,90

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Overview

QIS3 70/30 SST 70/30 QIS3 60/40 BSCR e9.961.044 e22.363.898 e17.663.245 CoC e15.600.976 e18.353.402 e16.153.843 Solvencyratio 3,41 1,77 1,90 I Conclusions I Higher SCR using SST I Pct equity%, SCR% I Conclusion I SCR: invest in obligations

I Return : invest in equity

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