The Study Of Solvency Capital Requirement In Solvency Ⅱ

Currently, international insurance regulators are reforming regulatory systems which are hopefully comprehensive and risk-oriented. The aim of the reforms is to guarantee long-term stability and sustainability of the insurance industry. In Europe, Solvency II has undergone many years of construction and will take effect soon. In China, China Insurance Regulatory Commission has officially started the construction of the second generation solvency supervision system. As a pioneer of reform, Solvency II is a significant pattern for reference and its main contents can be summarized as "Three Pillars and Two Requirements". The focus of this essay is SCR, a core of Pillar I. Qualitative analysis and quantitative analysis are used to study SCR.In qualitative analysis, the essay makes a comparison between SCR and MCR, SCR standard formula and internal model. After comparative study, a conclusion can be reached that SCR possesses characteristics of regulatory capital and economic capital so that SCR could be utilized not only for supervision purpose, but also for insurance undertakings to set up a corporate system of risk management and value creation based on risk quantification.In quantitative analysis, firstly, the shortcomings of the SCR standard formula are pointed out. Then three stochastic methods of internal model are analyzed and compared. The three stochastic methods are replicating portfolio, curve fitting and least squares monte carlo (LSMC). After comparative study, in author’s opinion, LSMC is better than replicating portfolio and curve fitting. In the following study, under the market-consistency principle, a LSMC model is built to assess SCR of one life undertaking (including assumptions of balance sheet, asset model and dividend scheme) with considerations of market risks (using Vasicek stochastic interest rate model). Finally, the LSMC model is used to do a case study for one life undertaking. In the case study, the parameters of dividend scheme are set according to relevant policies and regulations of the China Insurance Regulatory Commission and the parameters of Vasicek model are estimated according to SHIBOR data in China interest-rate market. After obtaining the appropriate parameters, the author employed the Matlab program to assess the SCR and solvency ratio of this life undertaking. Then multi-period SCRs are also assessed according to the OSRA in Pillar II. In addition, the author made a sensitivity analysis of market risks. The results show that the operability of LSMC is good in practice to assess current SCR and multi-period SCRs. Besides, asset volatility, interest rate volatility and interest rate level all have effect on SCR and solvency ratio. With the rise of asset volatility and interest rate volatility, insurer should hold more capital to resist risks. With the rise of interest rate level, the SCR decreased slightly and the solvency ratio becomes higher due to the discount effect.