The Role of the SII Review in Calculating Volatility Adjustments

Abstract

The aim of this paper is to examine the implications of the latest amendments to the methodology used to calculate volatility adjustments (VA) in the German life insurance sector. The VA essentially represents one of five so-called ‘Long-Term Guarantee’ (LTG) metrics introduced under Solvency II to ensure adequate treatment of insurance products featuring long-term guarantees. The VA is the LTG metric used most widely at the European level. In any case, insurers’ application of LTG metrics is subject to the prior approval of the national supervisory authority (cf. EIOPA, 2018, p. 9 et seq.)