A market consistent framework for the fair evaluation of insurance contracts under Solvency II

Solvency II directive is pushing insurance companies in engaging into market consistence evaluation of their balance sheet, including the financial options embedded in life with-profit funds. The robustness of these valuations... [ view full abstract ]

Solvency II directive is pushing insurance companies in engaging into market consistence evaluation of their balance sheet, including the financial options embedded in life with-profit funds. The robustness of these valuations is crucial for insurance companies in order to produce sound estimates and good risk management strategies for liability driven products such as with-profit saving and pension funds. This paper introduces a simulative approach for evaluation of insurance assets and liabilities, which is more suitable for risk management of liability driven products than common approaches generally adopted by insurance companies, in particular with respect to the assessment of valuation risk.