Locality in time of the European insurance regulation "risk-neutral" valuation framework, a pre-and post-Covid analysis and further developments

The so-called market-consistency of the European life insurance valuation as shaped by regulation guidelines embeds numerous theoretical and practical misstatements. Since El Karoui et al. (2017) the manipulation risk induced by the framework imprecision and, in particular, its high dependency to regulatory and non-regulatory calibration data is clear. In this paper we update some results and analysis of El Karoui et al. (2017) using data from a more recent "classical" year (2017) and from an exceptional year (first quarter of 2020, with Covid-19 effects), and test additional sensitivities. Based on the updated values we obtain up to-45% in the V IF estimates values depending on the swaption implied volatilities matrix used to calibrate the interest rates model. Then trying different calibration sets we obtain up to 105% difference. In parallel, we see that using 3-month averages to calibrate Economic Scenario Generators do not make effects of crises like Covid-19 disappear. We then address the "simulation seed" setting issue, and the interest and limits of keeping the same seed when estimating and comparing economic valuations, be it on horizontal (comparing valuations through time) or vertical (studying sensitivities at the same date) analysis. We finally open our study to propose various tools for a better risk management of economic scenarios and valuation, through a better understanding of Asset-Liability Management models.