Prospective solvency in insurance: quantitative methods for ORSA.

Summary The Solvency 2 prudential framework, which will come into force at the beginning of 2016, imposes an instantaneous and highly analytical view of the risks carried in order to determine the minimum capital requirement ("pillar 1") that an insurer must hold. While this approach has the advantage of providing a normative framework as well as a certain exhaustiveness of analysis, in practice it leads to the design of models that are ill-suited to the multi-year projection of the balance sheet and solvency because they are not sufficiently robust. Additional analyses ("pillar 2"), which aim to measure the impact of the strategic plan and management actions on the insurer's solvency, are also required. They are part of a more global approach allowing to provide adequate information on the deformation of the distribution of key balance sheet elements (net asset value, capital requirement, coverage ratio, etc.) over time for the steering of the organization. The challenge is then, on the basis of a global vision of the risks (pricing, provisioning, commercial, hedging and financial risks) to propose prospective models flexible enough to allow these projections as well as an analysis of the impact of the company's management actions. The objective of this book is to describe such approaches (model building and hypothesis justification) and to propose realistic illustrations. Its ambition is to provide a set of aggregated modeling tools for the insurer's balance sheet that are better able to account for dynamic aspects and thus provide a tool for operational management of the business.