The Quality of Reserve Risk Calculation Models under Solvency II and IFRS 17

N. Miklós Arató and László Martinek ()
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N. Miklós Arató: Department of Probability Theory and Statistics, Eötvös Loránd University, Pázmány Péter Sétány 1/C, 1117 Budapest, Hungary
László Martinek: Department of Probability Theory and Statistics, Eötvös Loránd University, Pázmány Péter Sétány 1/C, 1117 Budapest, Hungary

Risks, 2022, vol. 10, issue 11, 1-13

Abstract: We analyse four stochastic claims reserving methods in terms of their capability to estimate reserve risk and how successful they are at predicting distributions and VaRs of claim developments in particular. Both actual data and hypothetical claim triangles support our results. The appropriateness of the Solvency II risk margin on a one-year horizon and of the IFRS 17 risk adjustment in the long run largely vary by the chosen risk model. Despite the fact that IFRS 17 does not uniquely prescribe the metric for risk adjustment, we expect that VaR will be widely applied by insurance firms. Overall, actual data suggest that VaRs are predominantly underestimated by the models. Nevertheless, the 99.5 % -VaRs under Solvency II are mostly sufficient on a 10-year-horizon to cover liabilities.

Keywords: stochastic reserving; value-at-risk; Solvency II; IFRS 17; probabilistic forecasts (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
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