ICA vs. Solvency II SCR

[Chaapa]

Hello

I want to know what is the difference between the two - the basic concept is the same since that both are 1 yr VAR calculations (99.5% CI)?

Also when should we assume the stress event to occur - at time 0 or time 12?

Thanks

 

[Mike Lewry]

I want to know what is the difference between the two - the basic concept is the same since that both are 1 yr VAR calculations (99.5% CI)?

Key differences include:
- model needs to be pre-approved for SCR calc
- there is public disclosure for SCR result
- A&L figures used will be different between the two, eg assets includes reinsurance recoveries under Solvency II and non-hedgeable liabilities will be valued as BEL + Risk Margin

Also when should we assume the stress event to occur - at time 0 or time 12?

Here are some examples from the QIS5 standard formula:

Mortality: Immediate permanent increase in mortality rates of 15%
Longevity: Immediate permanent decrease in mortality rates of 20%
Expenses: 10% increase in all future expenses and an increase of 1%pa in the inflation rate
Life cat: absolute increase of 1.5 per 1000 in the rate of p/h dying over the following year.

So, the stresses seem to be applicable from time 0, but have a (possibly increasing) effect over the whole year.

 

[Chaapa]

Thank you for your reply.

Kind Regards