Risk measures versus ruin theory for the calculation of solvency capital for long-term life insurances

The purpose of this paper is twofold. First we consider a ruin theory approach along with risk measures in order to determine the solvency capital of long-term guarantees such as life insurances or pension products. Secondly, for such products,we challenge the definition of the Solvency Capital Requ...

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Bibliographic Details
Published inDependence modeling Vol. 4; no. 1
Main Authors Devolder, Pierre, Lebègue, Adrien
Format Journal Article
LanguageEnglish
Published De Gruyter Open 14.12.2016
De Gruyter
Subjects
life insurance
longevity
pension funds
risk measures
ruin theory
solvency capital
Solvency II
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Summary:The purpose of this paper is twofold. First we consider a ruin theory approach along with risk measures in order to determine the solvency capital of long-term guarantees such as life insurances or pension products. Secondly, for such products,we challenge the definition of the Solvency Capital Requirement (SCR) under the Solvency II (SII) regulatory framework based on a yearly viewpoint. Several methods for the calculation of the solvency capital are presented. We start our study with risk measures as considered in the SII framework and then proceed with the ruin theory approach. Instead of considering the continuous time setting of the ruin theory,we consider the discrete time—the yearly basis—of the accounting viewpoint.We finally give an illustration with a fixed guaranteed rate product along with the equity, interest rate and longevity risks. The latter risk brings us to consider zero-coupon longevity bonds in which we invest the capital. We show that long-term guarantees might be overloaded under the SII regulation.
ISSN:2300-2298
2300-2298
DOI:10.1515/demo-2016-0018