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Sensitivity of reserve

Discussion in 'SA2' started by VikZ, Apr 2, 2020.

  1. VikZ

    VikZ Member

    Hello,

    This is just a general question (I cannot remember exactly where I saw this from the course note). For reserve sensitivity under Solvency II, the relationship between reserve amount and discount rate will not be entirely linear with existence of guarantee (and option). Why is this the case?
     
    VikZ, Apr 2, 2020
    #1
  2. mugono

    mugono Ton up Member

    How far are you in your ‘actuarial journey’?
     
    mugono, Apr 4, 2020
    #2
  3. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi
    Are you referring to the concept of non-linearity?
    Many risks are non-linear. For example, if an equity market fall of 20% results in a capital requirement of £20m, it is possible that a 40% fall in the equity markets results in a capital requirement greater than £40m. This is due to the existence of guarantees and the probability with a larger fall they might bite.
    Does this help?
    Thanks
    Em
     
    Em Francis, Apr 5, 2020
    #3

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