Solvency II

WHAT IS THIS? Europe’s Solvency II directive came into effect in 2016, putting risk at the heart of a harmonised prudential framework for insurance firms. Similar in outline to the banking industry’s Basel standards, Pillar 1 sets out quantitative requirements; Pillar 2 tackles risk management and governance; Pillar 3 addresses transparency, reporting and public disclosure.

Confidence in controlling risk measures

Insurers increasingly use stochastic simulation approaches for estimating risk capital, but numerical errors are rarely measured. A control variate method can improve the accuracy dramatically without increasing the number of simulations.

Assessment of longevity risk under Solvency II

As the implementation of Solvency II looms, the calibration of the standard formula remains a controversial issue as the industry runs the fifth quantitative impact study. But the current design overshoots the one in 200 year confidence level.

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