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Svenska aktuariepriset 2019 Maryna Lundgren
The choice of expense models and underlying parameters directly in uences a technical provision result in Solvency II. Some of the components in the calculation of solvency capital requirements also depend on such choice. There are di erent practices on the expense modelling used not only by di erent EU-members but even within a one-member state.
Solvency II provides companies a certain freedom in the inter- pretation of the regulation when deciding on which models to use for projection of their cash ows.
Studying expense modelling is a highly relevant topic for actuar- ies employed in the insurance business to understand the advan- tages and disadvantages of di erent models, as well as their impact on a technical provision result. For actuaries employed in the nancial supervisory sector, a deep understanding of expense modelling provides a tool to use while challenging the models. It also provides a better understanding on which parts of the regula- tion that may need additional guidelines.
Maryna Lundgren has collected expense-modelling requirements from all three levels of the Solvency II regulation and analysed in which cases the underlying principles can contradict each other. This exercise gives a better understanding of what kind of requirements that can fail due to a poor model choice, which aims to help companies at model construction and regulators during model review.
The second part of the work is more practical. A unit-linked portfolio with deterministic cash ow modelling is under consid- eration. Six di erent models for expense cash ow projection are considered:
Studying expense modelling is a highly relevant topic for actuaries employed in the insurance business to understand the advantages and disadvantages of different models, as well as their impact on a technical provision result.
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MODEL 1 MODEL 2 MODEL 3
MODEL 4 MODEL 5 MODEL 6
Constant expenses per policy
Constant expenses per policy increased with in ation Company’s yearly xed costs and constant expenses per policy increased with in ation
Constant proportion to a best estimate
Constant proportion to assets under management
A discount rate loading
Maryna Lundgren considers all six models with di erent starting values of expenses, as well as with di erent assumptions on surren- ders.
The conclusions are that some of the models (M1-M3, M5) are easier to work with in the Solvency II environment than the oth- ers (M4, M6). Some of the models are more optimistic (M1, M5) in sense of the amount of free capital than the others (M3). The models are also reacting di erently on the stresses. The best esti- mate result can be more sensitive to the choice of the starting value and underlying assumptions about surrenders than to the choice of a projecting model itself.
THE SCOR SWEDEN RE MAGAZINE 2019 7