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

Author

Listed:
  • Devolder Pierre
  • Lebègue Adrien

    (Institut de Statistique, Biostatistique et Sciences Actuarielles, Université catholique de Louvain, Voie du Roman Pays 20 bte L1.04.01, B-1348 Louvain-la-Neuve, Belgium)

Abstract

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.

Suggested Citation

  • Devolder Pierre & Lebègue Adrien, 2016. "Risk measures versus ruin theory for the calculation of solvency capital for long-term life insurances," Dependence Modeling, De Gruyter, vol. 4(1), pages 1-22, December.
    • Handle: RePEc:vrs:demode:v:4:y:2016:i:1:p:22:n:18
    DOI: 10.1515/demo-2016-0018
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    Cited by:

    1. Pierre Devolder & Adrien Lebègue, 2016. "Compositions of Conditional Risk Measures and Solvency Capital," Risks, MDPI, vol. 4(4), pages 1-21, December.

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