Risk aggregation in Solvency II: How to converge the approaches of the internal models and those of the standard formula?

Laurent Devineau () and Stéphane Loisel
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Laurent Devineau: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, R&D, Milliman, Paris - Milliman France

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Abstract: Two approaches may be considered in order to determine the Solvency II economic capital: the use of a standard formula or the use of an internal model (global or partial). However, the results produced by these two methods are rarely similar, since the underlying hypothesis of marginal capital aggregation is not verified by the projection models used by companies. We demonstrate that the standard formula can be considered as a first order approximation of the result of the internal model. We therefore propose an alternative method of aggregation that enables to satisfactorily capture the diversity among the various risks that are considered, and to converge the internal models and the standard formula.

Date: 2009-12
Note: View the original document on HAL open archive server: https://hal.science/hal-00403662v2
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Citations: View citations in EconPapers (16)

Published in Bulletin Français d'Actuariat, 2009, 9 (18), pp.107-145

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00403662

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