The MRN Framework

Hong Kong's new risk-based capital (HKRBC) regulatory framework, effective from 1 July 2024, aims to strengthen enterprise risk management practices among local insurers.

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The valuation basis under HKRBC is defined in Part 4 of the Insurance (Valuation and Capital) Rules (Cap. 41R). Section 19 of the Rules focuses on contractual options and financial guarantees offered under an insurance contract, such as guaranteed minimum death benefits (GMDB) and guaranteed minimum maturity benefits (GMMB), which are commonly included in equity-linked insurance products. It requires insurers to calculate the time values of these options and guarantees using a stochastic simulation approach with risk-neutral scenarios.

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This MATLAB software package enables the user to generate risk-neutral scenarios for valuing financial guarantees that are written on investments allocated across multiple funds.

This software package is developed from the following papers that are authored by the CUHK Actuarial Science Research Team:

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Ng, A.C.Y. and Li., J.S.-H. (2011). Valuing Variable Annuity Guarantees with the Multivariate Esscher Transform. Insurance: Mathematics and Economics, 49, 393-400.

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Ng, A.C.Y. and Li, J.S.-H. (2013). Pricing and Hedging Variable Annuity Guarantees with Multi-Asset Stochastic Investment Models. North American Actuarial Journal, 17, 41-62.