European Actuarial Journal

, Volume 9, Issue 2, pp 391–421 | Cite as

Surplus participation schemes for life annuities under Solvency II

  • Sandy Both
  • Vanya Horneff
  • Barbara Kaschützke
  • Raimond MaurerEmail author
Original Research Paper


Under the new European Solvency II capital requirements life insurance companies have to implement a market-consistent valuation framework. A special challenge is the estimation of the market value of liabilities for products containing future discretionary surplus payments such as with-profit or participating life annuities (PLAs). We develop a realistic stochastic asset and liability company model with longevity and capital market risk for participating life annuities. Based on this model we project future cash flows to policyholders and calculate the solvency capital requirement (SCR) over the cohort’s lifetime. Besides the insurer’s point of view, we also analyse the utility implications for different types of annuitants. Our model and analysis are not only interesting for those acting under Solvency II regulation, but also in further economic valuation frameworks of the pension business of insurance companies.


Participating life annuity Market-consistent valuation Longevity risk Lifetime utility Stochastic modelling Solvency II 

JEL Classification

G11 G22 H55 J26 J32 



Research support was provided by the Frankfurter Verein für Versicherungswissenschaft, the German Investment and Asset Management Association (BVI), and the Research Center SAFE, funded by the State of Hessen initiative for research excellence, LOEWE. We thank the initiative High Performance Computing in Hessen for granting us computing time at the LOEWE-CSC and Lichtenberg Cluster.


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Copyright information

© EAJ Association 2019

Authors and Affiliations

  • Sandy Both
    • 1
  • Vanya Horneff
    • 1
  • Barbara Kaschützke
    • 1
  • Raimond Maurer
    • 1
    Email author
  1. 1.Department of FinanceGoethe University FrankfurtFrankfurtGermany

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