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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
