A bridge between Local GAAP and Solvency II frameworks to quantify Capital Requirement for demographic risk

TL;DR

This paper introduces a stochastic model bridging Local GAAP and Solvency II to accurately assess demographic risk capital requirements, emphasizing market conditions' impact on valuation.

Contribution

It provides a novel formulation for demographic profit valuation and demonstrates how market conditions influence capital requirement assessments.

Findings

Model effectively highlights main drivers of capital requirements.

Market conditions significantly impact demographic profit valuation.

Model bridges local GAAP and Solvency II frameworks.

Abstract

The paper provides a stochastic model useful for assessing the capital requirement for demographic risk. The model extends to the market consistent context classical methodologies developed in a local accounting framework. In particular we provide a unique formulation for different non-participating life insurance contracts and we prove analytically that the valuation of demographic profit can be significantly affected by the financial conditions in the market. A case study has been also developed considering a portfolio of life insurance contracts. Results prove the effectiveness of the model in highlighting main drivers of capital requirement evaluation, also compared to local GAAP framework.