Continuous compliance: a proxy-based monitoring framework
release_l2qzb4ra7vbancy7ghk7tpdizu
by
Julien Vedani, Fabien Ramaharobandro
2013
Abstract
Within the Own Risk and Solvency Assessment framework, the Solvency II
directive introduces the need for insurance undertakings to have efficient
tools enabling the companies to assess the continuous compliance with
regulatory solvency requirements. Because of the great operational complexity
resulting from each complete evaluation of the Solvency Ratio, this monitoring
is often complicated to implement in practice. This issue is particularly
important for life insurance companies due to the high complexity to project
life insurance liabilities. It appears relevant in such a context to use
parametric tools, such as Curve Fitting and Least Squares Monte Carlo in order
to estimate, on a regular basis, the impact on the economic own funds and on
the regulatory capital of the company of any change over time of its underlying
risk factors. In this article, we first outline the principles of the
continuous compliance requirement then we propose and implement a possible
monitoring tool enabling to approximate the eligible elements and the
regulatory capital over time. In a final section we compare the use of the
Curve Fitting and the Least Squares Monte Carlo methodologies in a standard
empirical finite sample framework, and stress adapted advices for future
proxies users.
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