Solvency assessment within the ORSA framework: issues and quantitative methodologies

Julien Vedani (1) , Laurent Devineau (1)

1 SAF - Laboratoire de Sciences Actuarielle et Financière

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.

Mots clés: Own Risk and Solvency Assessment; ORSA; Overall Solvency Needs; Solvency II; multi-year solvency; solvency ratio; Net Asset Value; polynomial proxy; Nested Simulations; Curve Fitting; Least Squares Monte-Carlo; Standard Formula

Domaines: Gestion des risques [q-fin.RM]

Julien Vedani, Laurent Devineau. Solvency assessment within the ORSA framework: issues and quantitative methodologies. 2012. ⟨hal-00744351v2⟩