Peer Review on the supervision of Stochastic Valuation under Solvency II

This peer review addresses the supervision of stochastic valuation of best estimate for products with options and guarantees and, therefore, is focused on life insurance. Deterministic valuation cannot capture the time value of options and guarantees and, therefore, the use of stochastic valuation may have a material impact on the use of undertakings’ solvency position depending on the characteristics of the product and the economic environment among other factors.

Stochastic Valuation (SV) is complex and requires high skills of undertakings and supervisors. We observed from countries with a well-developed practice that it has taken several years to develop a good market practice and supervision. It involves cooperation among undertakings, actuarial associations, consultants, academics and supervisors.