In Pillar 1 Peak 1 calculations, the company may assume policyholder behaviour that does not result in the most onerous reserve if: it is in the interests of the p/h to exercise the option in a less costly way for the company the allowance for the option is sufficiently prudent possible future changes in experience are allowed for Is this also the case for Solvency II BEL?
Hi I would say this is too prudent for Solvency II. When calculating the BEL, the projections should include all 'realistic' policyholder actions. Regarding the valuation of options, a market consistent simulation or stochastic analysis would likely be used. However, the 3rd bullet point applies to Solvency II's BEL. Thanks Em
Thanks! Just to confirm, so for the valuation of options for BEL under Solvency II, we would include all 'realistic' policyholder actions, e.g. April 2014 Q1(v) even if the option is in the money, they may not exercise the GAO due to tax reasons?
Hi If the company is to use this as a basis it will need sufficient date to base it on.... Any assumptions made by the company, with respect to the likelihood that policyholders will exercise contractual options, including lapses and surrenders, should be realistic and based on current and credible information. Policyholder behavior should be assumed to be dependent on the economic conditions and the financial standing. Any uncertainty will be captured through the SCR. Thanks Em
