Managing Insurance Capital Standards with Limit Systems

Managing Insurance Capital Standards with Limit Systems


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Modern Insurance Capital Standards such as the South African SAM, the European Solvency II, or the global ICS usually describe methods to measure the company's risk accompanied by minimum requirements on the company's own funds.

Usually the company's risk and the available own funds are determined just at a specific point in time. To successfully manage the company's risks, it is crucial to ensure the enduring fulfillment of the capital requirements (beyond  this specific point in time) in all future periods and even in case of some adverse developments.

In this presentation, the author shows a structured approach to solve this task. Starting point is a company-specific consideration of a risk strategy and risk appetite. Projection calculations and scenario analysis show the expected development of risks and own funds in future periods. Key factors influencing the company's risk profile are determined. Proper limitations of these key factors establish a powerful tool to manage the company's risks.

The presentation is derived from a resulting report of a working group of the German Actuarial Association named "Risk Strategy, Risk Tolerance and Limit Systems".

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