Solvency II reporting: How to interpret funds’ aggregate solvency capital requirement figures

Publication date: Available online 14 August 2017
Source:Insurance: Mathematics and Economics
Author(s): Balázs Mezőfi, Andras Niedermayer, Daniel Niedermayer, Balázs Márton Süli
Depending on the current risk exposure of an insurance company, the impact of buying an additional unit of a fund on an insurer’s overall Solvency II capital charges, i.e., the Solvency Capital Requirement (SCR), will differ. We call this impact the fund’s SCR contribution and show in which boundaries it lies if only the fund’s aggregate sub-SCR figures are known but not the risk exposures of the insurance company buying the fund. The upper bound of this range, the worst-case SCR contribution, can be used as a conservative measure to assess funds’ Solvency II risk contributions or to assign them to different Solvency II risk categories. We believe that providing funds’ worst-case SCR contributions can be useful information to insurance companies when screening from a broad investment universe.