Solvency II: stability problems with the SCR aggregation formula

Dietmar Pfeifer and Doreen Strassburger

Scandinavian Actuarial Journal, 2008, vol. 2008, issue 1, 61-77

Abstract: One of the central issues in the Solvency II process will be an appropriate calculation of the Solvency Capital Requirement (SCR). This is the economic capital that an insurance company must hold in order to guarantee a one-year ruin probability of at most 0.5%. In the so-called standard formula, the overall SCR is calculated from individual SCRs in a particular way that imitates the calculation of the standard deviation for a sum of normally distributed risks (SCR aggregation formula). However, in order to cope with skewness in the individual risk distributions, this formula must be calibrated accordingly in order to maintain the prescribed level of confidence. In this paper, we want to show that the methods proposed and discussed thus far still show stability problems within the general setup.

Date: 2008
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DOI: 10.1080/03461230701766825

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