The Construction Of ESG Simulation Platform And Liability Estimation Of Participating Policies

Insurance companies are liability-based financial institutions. The traditional life insurance policies can be well evaluated via life table and relative pricing assumptions. However, Policies with minimum guarantee are directly influenced by investment return and the fluctuation of the financial market, so it is necessary to take the market risk into consideration. Policies with minimum guarantee takes a huge share of China’s insurance market, the precision of it’s liability estimation is the key to the healthy development of China, even the world. The traditional solvency valuation model lacks the proper indicator of the economic indexes, so the model cannot produce a satisfying best estimation of the special policy’s liability with minimum profit guarantee. This also brings a hidden trouble to our nation’s insurance solvency supervision. With the powerful ability of simulation and forcasting, Economic Scenario Generator can solve this problem efficiently.This thesis described the background and meaning of this research. With the new solvency framework of risk modules division, the paper analyzed the traditional liability esimation method under insurance risk sub-module. With the introduction of computation and estimation of term structure, correlation coefficients and different risk measures, the thesis then discussed the specific treatments to special policies with embedded minimum profit guarantee under market risk sub-module. Then it built the theory background of Mente Carlo simulation and the ESG based on Mente Carlo and focus on the detail and algorithm of building up a ESG platform. This paper includes equity, bond and real-estate as assst portfolio, using Hull-White model to make parametric estimation and builts the ESG simulation platform with correlation coefficients, then we make the valuation of a standard participating policy under assumption and calculate the best estimation of liability.The conclusion showed that the ESG-based estimation can tell the difference of insurer’s investment portfolio strategiers. This method is superior to the traditional estimation method which considers premium only. It increased the accuracy of estimating policies with minimum guarantee in an obvious way.