Deutsche Library Solvency II Prototype
The Solvency II Deutsche Library Prototype builds upon the last release version of the Deutsche library, which was version 7.3.4. The prototype combines several functionalities previously developed in independent prototypes, with extended code to make these strands work in combination, and new code for Solvency II standard formula calculations. The prototype comes in the form of a full library with example products.
The Deutsche Library Solvency II Prototype is available free of charge to all clients who license the Deutsche library. The minimum system requirement for this prototype is PP 8.2.1 / PE 8.2.1.
For more information on the Deutsche Library Solvency II Prototype, please view the bulletin here.
The following paragraphs give a brief summary of the enhancements introduced in the Deutsche Library Solvency II Prototype.
Alternative Projection Basis (APB)
Alternative Projection Basis functionality enables parallel calculations using different bases. The results are then stored in array variables. We extended the code of the original APB prototype to calculate surplus by source and BWR using alternative projection basis.
We have added the code for calculating the Zinszusatzreserve from the ZZR prototype (the version with constant reference interest rate for projection year). The code has also been extended to calculate reserves taking ZZ reserves into account on the alternative projection basis.
Flexible RfB Bindung Period
The functionality has been further enhanced by adding code to calculate the RfB using a flexible binding period, as previously coded in a separate mini-library. The calculations relating to the flexible RfB binding period have also now been coded in the APB variables.
Unit-Linked Surplus by Source
In order to make the library consistent, we have extended the code to calculate the surplus by source for unit-linked products. This area of the code has only been developed within the SII Prototype, and did not exist in any previous prototype. The surplus by source for unit-linked products is working together with APB functionality.
Solvency II Standard Formula
New code specifically for SII calculations has been added in the prototype. The prototype workspace contains examples of Deutsche library products, top-level Solvency II Summary product and all necessary tables.
Solvency II functionality provides best estimate liability values calculated using experience assumptions. It calculates risk-free rates from an economic data file, which are used for discounting the cash flows and investment returns. APB variables are used for calculating and storing results for prescribed Solvency II shocks. Examples of management action code have been added, and also tolerance in bonus rates for loss absorbency scenarios.
Top-Level Summary Product
After calculating individual capital requirements at product level, these are passed to a Summary product to be aggregated to reduce the overall requirements allowing for correlations between subrisks. Based on these results, we can derive net and gross Life SCR. Using a correlation matrix for all risks allows us to calculate the higher level BSCR. Comparing the gross and net BSCRs gives us the loss absorbency of technical provisions (i.e. impact of management actions). Using the lower and upper bound percentages, the SCR, the linear MCR and AMCR, we obtain the minimum capital requirement MCR.
With the help of rebasing, it is possible to determine the Risk Margin from the discounted SCR (or MCR if greater) in the future time period by multiplying by cost of capital percentage.
Deutsche Library SII Prototype in Conjunction with Other Models
The Deutsche library functionality has been extended to provide the input not only for a Summary product, but also for other top-level SII calculation models, such as the QIS6 © GDV 2012 cash-flow model.
The Deutsche Library SII prototype provides calculations for linked and non-linked liabilities, but in theory it could be used in conjunction with other models that calculate the asset stresses.
This SII Prototype is based on our interpretation of the current status of the proposed SII regulations. It is not necessarily indicative of future developments, and we may use alternative approaches to perform SII calculations in future developments.
For more information, please view the datasheet here.