A Primer on Non-Life Insurance Ratios Craig Thorburn Cthorburn@worldbank.org

A Primer on Non-Life Insurance Ratios

Craig Thorburn

Cthorburn@worldbank.org

A Primer on Non-Life Insurance Ratios

Solvency and Capital

Premiums and Capital

• Kenney Rules, Leverage, Capital as a percentage of premium

%100xGPW

Capital %100xCapital

GPW

%100xNPW

Capital%100x

Capital

NPW

Provisions and Capital

• A response to the fact that companies need capital until all claims are finalized and paid.

%100Pr

xovisions

Capital

Solvency Margin Requirements

• A basic index type solvency margin

• Alternative approaches may use a different formula

ovisionsClaimsK

emiumK

F

MaxinSolvencyM

Pr

Prarg

2

1

Coverage Ratio

• Checks measure of actual solvency against a standard base.

• If required solvency is the legal requirement then the ratio should be >100%, preferably with a buffer.

%100Re

xencyquiredSolv

olvencyAvailableS

Quality of Capital

• Capital can come in different forms from pure equity to less permanent subordinated debt, for example.

• Some reinsurance contracts may supply a form of capital.

• Where there is more than one form then it is useful to separate out the components and compare “core” capital as well as “total capital”.

A Primer on Non-Life Insurance Ratios

Sixth Break