This mismatch makes a proper appropriateness assessment impossible, calling for a revision of the longevity shock. Moreover, insurers would benefit from using more precise modelling techniques rather than relying on a fixed 20% shock.
Article 101(3) of the Solvency II Directive defines the Solvency Capital Requirement (SCR) as the Value-at-Risk of an insurer’s basic Own Funds over a one-year period, at a 99.5% confidence level. This means the SCR reflects potential changes in Own Funds due to adverse events within a one-year horizon. For longevity risk, the focus should therefore be on how changes in longevity assumptions or emerging experience over one year could impact Own Funds.
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