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On the lifetime and one-year views of reserve risk, with application to IFRS 17 and Solvency II risk margins

England, P. D., Verrall, R. J. ORCID: 0000-0003-4098-9792 and Wüthrich, M. V. (2019). On the lifetime and one-year views of reserve risk, with application to IFRS 17 and Solvency II risk margins. Insurance: Mathematics and Economics, doi: 10.1016/j.insmatheco.2018.12.002

Abstract

This paper brings together analytic and simulation-based approaches to reserve risk in general (P&C) insurance, applied to the traditional actuarial view of risk over the lifetime of the liabilities and to the one-year view of Solvency II. It also connects the lifetime and one-year views of risk. The framework of the model in Mack (1993) is used throughout, although the results have wider applicability.

The advantages of a simulation-based approach are highlighted, giving a full predictive distribution, which is used to estimate risk margins under Solvency II and risk adjustments under IFRS 17. We discuss methods for obtaining capital requirements in a cost-of-capital risk margin, and methods for estimating risk adjustments using risk measures applied to a simulated distribution of the outstanding liabilities over their lifetime.

Publication Type: Article
Additional Information: © Elsevier, 2019 . This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Stochastic reserving, IFRS 17Solvency II, Risk adjustment, Risk margin, Bootstrap, Cost-of-capital, Value-at-risk, Tail value-at-risk, Proportional hazards transform, Coherent risk measure
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Actuarial Science & Insurance
URI: http://openaccess.city.ac.uk/id/eprint/21270
[img] Text - Accepted Version
This document is not freely accessible until 5 July 2020 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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