The emergence of Solvency II in Europe and impending Solvency II-style supervision in the rest of the world leaves insurance companies in need of more powerful analytical tools than ever before. One example of this need is the modeling requirement dictated by Solvency II. For the more complex business, like traditional for-profit products, this essentially requires life insurance companies to apply a so-called nested stochastic approach to calculate the solvency capital requirement (SCR).

For most members of the life insurance industry, these types of calculations are complex and computer intensive, which means that actuarial and risk departments are finding it extremely challenging to obtain results with the required precision and within the required timelines.

In recent years, a number of proxy approaches have been introduced to make SCR calculations more manageable. This report discusses how to choose a proxy approach and how to use it to best effect.

This article was originally published in InsuranceERM.