# Standard Formula for Solvency II

I am qualified in Mathematics and Physics but would like to have a career in Finance. I will be starting an M.Sc. In Financial Mathematics next October but am already reading about certain topics to prepare for a particular job interview with a national financial regulator that might consider me if I am lucky enough. I will need to show an understanding in Solvency II (the EU directive) for Insurance companies. The "Standard Formula" and "Stress Testing" were mentioned specifically. Reading about them, I encountered the following: https://hal.archives-ouvertes.fr/hal-00403662v2/document

It contains the following:

Denote

$(F_t)_{t\geq0}$ - the filtration that permits to characterise the available information for each date;

$\delta_u$ - the discount factor that is expressed with the instantaneous risk free interest rate $r_u=\delta_u=e^{-\int_0^ur_h\,dh}$;

$P_t$-the cash-flows of the liabilities (claims, commissions, expenses) for the period t;

$R_t$ - the profit of the company for period t.

Equity $E_0$ and the fair value of the liabilities at the start date, $L_0$, are calculated in the following manner:

\begin{eqnarray} L_0=E_Q\left[\sum_{u\geq1}\delta_u\cdot P_t\vert F_0\right] \end{eqnarray}

and

\begin{eqnarray} E_0=E_Q\left[\sum_{u\geq1}\delta_u\cdot R_t\vert F_0\right] \end{eqnarray}

I need some guidance, perhaps a book or website to better understand these terms which are new to me. Any help would be greatly appreciated - even some real-life experiences to prepare me for what I should expect. Is there software that calculates these? Thanks a lot.

• Have you googled "introduction to Solvency II" or similar terms? This should give you plenty of general information. – g g Apr 14 '15 at 13:32