Modelling longevity risk for Solvency II

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By Stuart Silverman, Philip Simpson | 17 October 2011

Many companies have expended significant time and effort as they prepare to comply with the forthcoming major change in the EU insurance regulatory regime to Solvency II.

This case study demonstrates the calculation of required capital under our interpretation of Solvency II utilizing an internal model that reflects volatile future mortality rates. To generate the values in this analysis, we used Milliman’s longevity risk projection system, REVEAL.

The case study shows that the use of a stochastic-based internal model reflecting volatility in future mortality rates may allow insurance companies to hold less required capital under Solvency II on their longevity-risk-related products than required by the Solvency II Standard Formula.

Authors

Insurance