European Actuarial Journal

, Volume 7, Issue 1, pp 51–88 | Cite as

Allowance for surplus funds under Solvency II: adequate reflection of risk sharing between policyholders and shareholders in a risk-based solvency framework?

  • Tobias Burkhart
  • Andreas Reuß
  • Hans-Joachim Zwiesler
Original Research Paper


In several member states of the European Union, collective bonus reserves are set up as part of the statutory reserves backing traditional participating life insurance business. Although primarily reserved for policyholders’ future surplus participation, national law (for example in Germany and Austria) allows the insurance companies to use these funds to (partly) cover future losses. Under the risk-based solvency framework Solvency II, the loss absorbency of these buffer reserves is explicitly recognized by so-called surplus funds which are classified as Basic Own Funds. This paper performs a profound analysis of the approach currently used in Germany to reflect this type of risk sharing between policyholders and shareholders in the Solvency II framework. The comprehensive methodology developed in this paper can be used to determine the economic value of surplus funds and ensures that no double-counting of future cash flows occurs. It can easily be adapted to other countries, in particular Austria. Based on a stochastic balance sheet and cash flow projection model, we present numerical results that illustrate how the allowance for Surplus Funds affects Basic Own Funds, Solvency Capital Requirement, Risk Margin and Deferred Taxes under Solvency II. We conclude that the current valuation approach appears to be internally consistent, but some of the underlying assumptions are questionable. In particular, the valuation approach should be refined in order to better reflect local statutory requirements, including both, accounting rules and other regulatory constraints for participating business.


Surplus funds Participating life insurance Risk sharing Solvency II 


  1. 1.
    BaFin (2015)Interpretative Decisions –Überschussfonds nach Art. 91 der Solvency-II-Richtlinie. Accessed on 29 Jan 2016
  2. 2.
    BaFin (2016)Interpretative Decisions—Latente Steuern auf versicherungstechnische Rückstellungen unter Solvency II. DE/Auslegungsentscheidung/VA/ae_160222_latente_steuern_auf_versicherungstechnische_rueckstellungen.html. Accessed on 11 Apr 2016
  3. 3.
    Burkhart T, Reuß A, Zwiesler HJ (2015) Participating life insurance contracts under Solvency II: inheritance effects and allowance for a Going Concern Reserve. Eur Actuar J 5(2):203–244MathSciNetCrossRefGoogle Scholar
  4. 4.
    Christiansen MC, Niemeyer A (2014) Fundamental definition of the solvency capital requirement in solvency II. ASTIN Bull 44(03):501–533MathSciNetCrossRefGoogle Scholar
  5. 5.
    DAV (2011) DAV Fachgrundsatz—market consistent embedded value. CologneGoogle Scholar
  6. 6.
    European Commission (2015) Commission Delegated Regulation (EU) 2015/35. BrusselsGoogle Scholar
  7. 7.
    European Union (2009) Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). OJ L 335/1Google Scholar
  8. 8.
    Führer C, Grimmer A (2010) Einführung in die Lebensversicherungsmathematik, 2nd edn. Verl. Versicherungswirtschaft, KarlsruheMATHGoogle Scholar
  9. 9.
    GDV (2008) GDV-Rundschreiben 2359/2008 – Anwendung von Aufsichtsregeln in der Finanzmarktkrise. BerlinGoogle Scholar
  10. 10.
    GDV (2015) Die deutsche Lebensversicherung in Zahlen 2015. Accessed on 13 June 2016
  11. 11.
    GDV (2016) Fachkonzept Branchensimulationsmodell. BerlinGoogle Scholar
  12. 12.
    Glasserman P (2010) Monte Carlo methods in financial engineering. Springer, New York, NYMATHGoogle Scholar
  13. 13.
    Goecke O (2013) Pension saving schemes with return smoothing mechanism. Insur Math Econ 53(3):678–689MathSciNetCrossRefMATHGoogle Scholar
  14. 14.
    Hansen M, Miltersen KR (2002) Minimum rate of return guarantees: the Danish case. Scand Actuar J 2002(4):280–318MathSciNetCrossRefMATHGoogle Scholar
  15. 15.
    Kling A, Richter A, Ruß J (2007) The interaction of guarantees, surplus distribution, and asset allocation in with-profit life insurance policies. Insur Math Econ 40(1):164–178MathSciNetCrossRefMATHGoogle Scholar
  16. 16.
    Reuß A, Ruß J, Wieland J (2015) Participating life insurance contracts under risk based solvency frameworks: how to increase capital efficiency by product design. In: Glau K, Scherer M, Zagst R (eds) Innovations in Quantitative Risk Management. Springer Proceedings in Mathematics & Statistics, Vol 99. Springer, Cham, pp 185–208Google Scholar
  17. 17.
    Wagner T (2013) Solvency II: surplus funds und going-concern-reserve. Der Aktuar 2013(2):71–74Google Scholar
  18. 18.
    Wolfsdorf K (1997) Versicherungsmathematik: Teil 1: Personenversicherung. Vieweg + Teubner Verlag, StuttgartCrossRefMATHGoogle Scholar

Copyright information

© EAJ Association 2017

Authors and Affiliations

  • Tobias Burkhart
    • 1
  • Andreas Reuß
    • 1
  • Hans-Joachim Zwiesler
    • 2
  1. 1.ifa (Institute for Finance and Actuarial Sciences)UlmGermany
  2. 2.Institute of Insurance ScienceUniversity of UlmUlmGermany

Personalised recommendations