We address computational problems deriving from Solvency II compliance in the context of Italian life insurance. Solvency II requires insurance undertakings to perform market consistent valuation of technical provisions and continuous monitoring of risks. We examine the case of profit sharing policies with minimum guarantees, which is the most diffused type of life policy in Italy. Market consistent valuation of the complex cash flows generated by these contracts entails modelling of management actions and the use of numerical techniques in a stochastic framework, typically Monte Carlo simulation on a fine grained time grid. Fulfillment of the subsequent highly-demanding computational tasks is possible only by implementing valuation procedures in parallel and distributed architectures. In this work we introduce DISAR, a Solvency II compliant system designed to work on a grid of conventional computers, and discuss its performances.
The definition of solvency for insurance companies, within the European Union, is currently being revised as part of Solvency II Directive. The new definition induces revolutionary changes in the logic of control and expands the responsibilities in business management. The rationale of the fundamental measures of the Directive cannot be understood without reference to probability distribution functions. Many insurers are struggling with the realisation of a so-called “internal model” to assess risks and determine the overall solvency needs, as requested by the Directive. The quantitative assessment of the solvency position of an insurer relies on Monte Carlo simulation, in particular on nested Monte Carlo simulation that produces very hard computational and technological problems to deal with. In this paper, we address methodological and computational issues of an “internal model” designing a tractable formulation of the very complex expectations resulting from the “market-consistent” valuation of fundamental measures, such as Technical Provisions, Solvency Capital Requirement and Probability Distribution Forecast, in the solvency assessment of life insurance companies. We illustrate the software and technological solutions adopted to integrate the Disar system—an asset–liability computational system for monitoring life insurance policies—in advanced computing environments, thus meeting the demand for high computing performance that makes feasible the calculation process of the solvency measures covered by the Directive
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