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Comparing Solvency II and Life and General Insurance Capital approaches to capital determination of a life portfolio in the presence of stress scenarios

Published online by Cambridge University Press:  08 February 2018

Kangjing Tan  and
Aaron Bruhn
Kangjing Tan
Affiliation:
College of Business and Economics, Australian National University, Canberra, ACT 0200, Australia
Aaron Bruhn*
Affiliation:
College of Business and Economics, Australian National University, Canberra, ACT 0200, Australia
*
*Correspondence to: Aaron Bruhn, College of Business and Economics, Australian National University, Canberra, ACT 0200, Australia. Tel: +612 61254904; E-mail: [email protected]
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Abstract

The European-centric Solvency II and Australian-centric Life and General Insurance Capital regimes are two examples of risk-based approaches to capital determination and risk management for life insurers. Both consist of a three-pillar structure covering capital, risk management and disclosure requirements. We apply the capital requirements of each regime to three synthetic sets of insurance policies, including a risk, annuity and combined portfolios, and consider the impact on capital arising from three separate and relatively severe stress events. Results highlight the relatively capital intensive nature of annuities, the differences between different capital regimes, the significance of solvency II’s matching adjustment and the robustness of each regime to both pandemic and economic stresses. Results also highlight the nature of diversification benefits from within each capital regime, on overall capital requirements.

Keywords

SolvencyLAGICCapitalLife insurance
Type
Paper
Information
Annals of Actuarial Science , Volume 13 , Issue 1 , March 2019 , pp. 36 - 66
Copyright
© Institute and Faculty of Actuaries 2018 

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