J
Joseph Barnett
Member
Hi,
My understanding of the SCR calculation is that it is the 99.5th VaR for own funds. Own funds = Assets - Technical Provisions = Assets - (BEL + RM). RM is a function of the future SCR run off, so this means that calculating the SCR and/or risk margin at t=0 gets exponentially more difficult the longer it takes the SCR to run off.
I was talking about this with a colleague recently and they said that in fact the risk margin is not stressed as part of the SCR calculation, which makes it a good deal easier to calculate.
I know there are a number of simplifications that are allowed for the risk margin calculation, on the basis that they appropriately approximate the "real" risk margin. My question is about whether my colleague was referring to a simplification for practicality's sake, or whether that is actually how the SCR is defined.
In other words if we suddenly found our computers were fast enough to calculate the SCR using a stressed risk margin tomorrow, would that be more faithful to the theory underlying the regulation? Or is there some theoretical reason why we shouldn't be stressing the risk margin in the SCR calculation?
Thanks
My understanding of the SCR calculation is that it is the 99.5th VaR for own funds. Own funds = Assets - Technical Provisions = Assets - (BEL + RM). RM is a function of the future SCR run off, so this means that calculating the SCR and/or risk margin at t=0 gets exponentially more difficult the longer it takes the SCR to run off.
I was talking about this with a colleague recently and they said that in fact the risk margin is not stressed as part of the SCR calculation, which makes it a good deal easier to calculate.
I know there are a number of simplifications that are allowed for the risk margin calculation, on the basis that they appropriately approximate the "real" risk margin. My question is about whether my colleague was referring to a simplification for practicality's sake, or whether that is actually how the SCR is defined.
In other words if we suddenly found our computers were fast enough to calculate the SCR using a stressed risk margin tomorrow, would that be more faithful to the theory underlying the regulation? Or is there some theoretical reason why we shouldn't be stressing the risk margin in the SCR calculation?
Thanks