A simulation-based ALM model in practical use by a Norwegian Life Insurance company

A key aspect of the Solvency II regulatory framework is to compute the market value of the liabilities. In this chapter we present an Asset Liability Management (ALM) model for computing this market value. The ALM model, which is the result of a cooperation between the Norwegian Computing Center and the actuary and risk management departments of SpareBank 1 Forsikring, is able to produce an estimate of the liabilities for several different insurance products. In this chapter the focus is, however, on one of these products; individual annuity insurance with a surrender option and an annual interest rate guarantee. In contrast to most of the existing literature we consider a real-world portfolio of 25,528 insurance policies. For this portfolio, we have computed the market value of the liabilities using two different approaches; the policy-by-policy and the aggregated approach. Moreover we have analysed the effect of different Solvency II related stress scenarios