Does Solvency II demand stochastic models?

(Jan 24, 2010)

Solvency II is a major overhaul of the reserving rules for insurers throughout the European Union.  An important consideration for annuity writers is how it will relate to longevity trend risk.  For example, consider the following text about "Statistical quality standards" as they refer to insurers' internal models:

"The methods used to calculate the probability distribution forecast shall be based on adequate, applicable and relevant actuarial and statistical techniques and shall be consistent with the methods used to calculate technical provisions. The methods used to calculate the probability distribution forecast shall be based upon current and credible information and realistic…

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Tags: longevity risk, Solvency II, ICA

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