A bridge between Local GAAP and Solvency II frameworks to quantify Capital Requirement for demographic risk

Abstract: The paper provides a stochastic model useful for assessing the capital requirement for demographic risk. The model extends to the market consistent context classical methodologies developed in a local accounting framework. In particular we provide a unique formulation for different non-participating life insurance contracts and we prove analytically that the valuation of demographic profit can be significantly affected by the financial conditions in the market. A case study has been also developed considering a portfolio of life insurance contracts. Results prove the effectiveness of the model in highlighting main drivers of capital requirement evaluation, also compared to local GAAP framework.