The Solvency II square-root formula for systematic biometric risk

Marcus C. Christiansen, Michel M. Denuit and Dorina Lazar

Insurance: Mathematics and Economics, 2012, vol. 50, issue 2, 257-265

Abstract: In this paper, we develop a model supporting the so-called square-root formula used in Solvency II to aggregate the modular life SCR. Describing the insurance policy by a Markov jump process, we can obtain expressions similar to the square-root formula in Solvency II by means of limited expansions around the best estimate. Numerical illustrations are given, based on German population data. Even if the square-root formula can be supported by theoretical considerations, it is shown that the QIS correlation matrix is highly questionable.

Keywords: Solvency capital requirement (SCR); Markov jump process (MJP); Generalized life insurance; Disability insurance; Systematic risk; Correlation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:50:y:2012:i:2:p:257-265

DOI: 10.1016/j.insmatheco.2011.11.008

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