Hostname: page-component-6898cfcb55-zkb6p Total loading time: 0 Render date: 2026-11-11T16:54:26.047Z Has data issue: false hasContentIssue false
  • English
  • Français

Risk-Based Capital in General Insurance

Published online by Cambridge University Press:  10 June 2011

N.D. Hooker,
J.R. Bulmer,
S.M. Cooper,
P.A.G. Green and
P.H. Hinton
N.D. Hooker
Affiliation:
IT Innovation AG, Schiedhaldenstrasse 35-A, CH-8700 Kuesnacht, Switzerland. Tel: +41 1 226 5297; Fax: +41 1 912 2094; E-mail: nh@dfa.com
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

This paper looks at the problems of assessing, for solvency purposes, the capital requirements of a non-life insurer in the context of the United Kingdom. It considers how these capital requirements might vary according to the different risks to which an insurer is subject and how this Risk-Based Capital (RBC) might be measured in practice, using as a case study the RBC formula recently introduced in the United States of America. The paper also discusses the application of RBC concepts to the problem of internal capital allocation, to assist in measuring an insurer's rate of return to shareholders by business unit, as well as the more obvious regulatory application. The advantages and disadvantages of a formula-based approach to capital requirements for solvency purposes are discussed in comparison with possible alternative approaches to insurance supervision.

Keywords

CapitalGeneral InsuranceInsurance SupervisionRiskRisk-Based CapitalSolvency

Information

Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 2 , Issue 2 , 01 June 1996, pp. 265 - 323
Copyright
Copyright © Institute and Faculty of Actuaries 1996

References

REFERENCES

Actuarial Advisory Committee to the Naic Property & Casualty Risk-Based Capital Working Group (Hartman, D.C., Braithwaite, P., Butsic, R.P., Feldblum, S., Fitzgibbon, W.J., Flynn, D.P., Fürst, P.A., Kaufman, A.M., Lowe, S.P., Lyons, D.K., Mccarter, M.G. & Nelson, D.A.) (1992). Property-casualty risk-based capital requirements— a conceptual framework, Casualty Actuarial Society Forum, Spring 1992, 211–280.Google Scholar
Actuarial Advisory Committee to the Naic Property/Casualty Risk-Based Capital Working Group (1993). Report on covariance method for property/casualty risk-based capital. Casualty Actuarial Society Forum, Summer 1993, 173–202.Google Scholar
American Academy of Actuaries (1992). Position statement on insurer solvency. The Actuarial Update, November 1992.Google Scholar
American Academy of Actuaries Property/Casualty Risk-Based Capital Task Force (1993). Report on reserve and underwriting risk factors. Casualty Actuarial Society Forum, Summer 1993, 105–171.Google Scholar
Bride, M. & Lomax, M.W. (1994). Valuation and corporate management in a non-life insurance company. J.I.A. 121, 363–440.Google Scholar
Butsic, R.P. (1992). Solvency measurement for property-liability risk-based capital applications. Casualty Actuarial Society 1992 Discussion Paper Program on Insurer Financial Solvency, 1, 311–354.Google Scholar
Cia Committee on Solvency Standards for Financial Institutions (1994). Dynamic solvency testing for property and casualty insurance companies. Exposure Draft of the Canadian Institute of Actuaries.Google Scholar
Clarke, H.E. (1992). Capital adequacy and allocation of capital to lines of business. Institute of Actuaries' Asset Liability Convention, April 1992.Google Scholar
Cummins, J.D., Harrington, S. & Niehaus, G. (1992). An economic overview of risk-based capital requirements for the property-liability insurance industry. Alliance of American Insurers.Google Scholar
D'Arcy, S.P. & Doherty, N.A. (1988). The financial theory of pricing property-liability insurance contracts. Wharton School Monograph, University of Pennsylvania.Google Scholar
Daykin, C.D., Pentikäinen, T. & Pesonen, E. (1993). Practical risk theory. Chapman and Hall.CrossRefGoogle Scholar
Green, P.A.G., Brickman, S.J., Bride, M., Hitchcox, A.N., Jones, S.M. & Larner, K.P.W. (1991). Report on capital allocation. General Insurance Convention, Llandrindod Wells, October 1991.Google Scholar
Hitchcox, A.N. (1995). Capital, profit and risk. Conference on Risk-Based Capital, AIC Conferences, London, May 4–5.Google Scholar
Hooker, N.D., Botterill, A., Hinton, P.H., Hitchcox, A.N., Lomax, M.W., White, M.G. & Wright, W.C. (1993). Report on risk-based capital. General Insurance Convention, Hinckley Island, October 1993.Google Scholar
Hooker, N.D., Bulmer, J.R., Cooper, S.M., Hinton, P.H., Newman, A., Silverman, A. & Wright, W.C. (1994). Capital requirements and risk-based capital. General Insurance Convention, Glasgow, October 1994.Google Scholar
Hooker, N.D. (1993). Risk-based capital: note for the London Market Actuaries Group.Google Scholar
Institute of Actuaries (1993). Implementation of the Accounts Directive for General Insurance Companies—actuarial issues. Institute of Actuaries, August 1993.Google Scholar
Joint Actuarial Working Party (1993). Risk-based capital report. Institute of Actuaries and Faculty of Actuaries.Google Scholar
Kaufman, A.M. & Liebers, E.C. (1992). NAIC risk-based capital efforts in 1990–91. Casualty Actuarial Society 1992 Discussion Paper Program (Insurer Financial Solvency), 1, 123–178.Google Scholar
Lewin, C.G., Carne, S.A., De Rivaz, N.F.C., Hall, R.E.G., Mckelvey, K.J. & Wilkie, A.D. (1995). Capital projects. B.A.J. 1, 11, 155–330.Google Scholar
Lloyd's of London (1995). Risk-based capital for Lloyd's: a consultative document.Google Scholar
Mohl, J. (1993). Risk-based capital: The unknown crisis. Actuarial Review, February 1993.Google Scholar
National Association of Insurance Commissioners (1993). NAIC property/casualty risk-based capital formula: exposure draft, 28 June 1993.Google Scholar
Needleman, P.D. & Roff, T.A. (1995). Asset shares and their use in the financial management of a with-profits fund. B.A.J. 1, 603–688.Google Scholar
Pentikainen, T. (ED.) (1982). Solvency of insurers and equalisation reserves. Insurance Publishing Company, Helsinki.Google Scholar
Redman, T.M. & Scudellari, C.E. (1992). A new look at evaluating the financial conditions of property and casualty insurance and reinsurance companies. Casualty Actuarial Society 1992 Discussion Paper Program (Insurer Financial Solvency) 10–13 May, 2, 867–917.Google Scholar
Ryan, J.P. & Larner, K.P.W. (1990). The valuation of general insurance companies. J.I.A. 117, 597–669.Google Scholar