Presentation is loading. Please wait.

Presentation is loading. Please wait.

Capital Models and Their Relationship With Loss Reserving Joanne Balling, ACAS Director.

Similar presentations


Presentation on theme: "Capital Models and Their Relationship With Loss Reserving Joanne Balling, ACAS Director."— Presentation transcript:

1 Capital Models and Their Relationship With Loss Reserving Joanne Balling, ACAS Director

2 Standard & Poor’s Capital Adequacy Ratio Underwriting Risk (C-3) Reserve Risk (C-4) Other Business Risk (C-5) Asset-Related Risk Charges (C-1) Total Adjusted Capital Credit- Related Risk Charges (C-2) -- 

3 Total Adjusted Capital Statutory Surplus Loss Reserve Deficiency +/- Time Value Of Money + Other +/-

4 Total Adjusted Capital n Surplus As Regards Policyholders1,636.5 n Adjustment For Redundancy / Deficiency Of(214.4) Reserves n Discount For Time Value Of Money32.8 n Analyst’s Adjustments (e.g. Surplus Notes) Standard & Poor’s Total Adjusted Capital 1,454.9 ABC Insurance Group Capital Adequacy Model

5 Total Adjusted Capital n Surplus As Regards Policyholders1,636.5 n Adjustment For Redundancy / Deficiency Of(100.4) Reserves n Discount For Time Value Of Money25.8 n Analyst’s Adjustments (e.g. Surplus Notes) Standard & Poor’s Total Adjusted Capital 1,561.9 ABC Insurance Group Capital Adequacy Model

6 Asset Risk (C-1) ABC Insurance Group Capital Adequacy Model Required Capital For: Unaffiliated Bonds64.2 Affiliated Bonds4.9 Mortgage-Backed Securities 12.7 Interest Rate Risk Unaffiliated Preferred Stock9.2 Unaffiliated Common Stock112.8 Affiliated Preferred & Common Stock92.4 Mortgage Loans3.0 Real Estate Holdings4.7 Collateral Loans0.0 Schedule BA4.0 Other Invested Assets4.4 Off-Balance Sheet Items1.2 Concentration Risk0.0 Additional Capital Needs For Asset 0.0 Risks Not Already Captured Required Capital For Asset Risk Adjusted By Size Factor

7 Credit Risk Factors Reinsurance Recoverables Rating AAA AA A BBB BB B CCC U, N.R. S, R Factor Credit Risk Factors

8 Credit Risk (C-2) ABC Insurance Group Capital Adequacy Model Total Required Capital For Credit Risk 59.6 Credit Risk For: Reinsurance Recoverables46.7 Other Non-Invested Assets10.9 Additional Capital Needs For Credit Risks 2.0 Not Already Captured

9 Credit Risk (C-2) ABC Insurance Group Capital Adequacy Model Total Required Capital For Credit Risk 53.6 Credit Risk For: Reinsurance Recoverables40.7 Other Non-Invested Assets10.9 Additional Capital Needs For Credit Risks 2.0 Not Already Captured

10 Underwriting Risk (C-3) ABC Insurance Group Capital Adequacy Model Premium Risk For: Homeowners / Farm Owners / Personal Auto76.8 Auto Liability5.0 Combined 2 Year Lines / International115.6 Commercial Auto Liability19.7 Commercial Liability69.1 Commercial Multiple Peril23.1 Workers’ Compensation78.4 Reinsurance0.7 Analyst’s Adjustment For Premium Risks0.0 Not Already Captured Total Required Capital For Underwriting Risk 388.4

11 Reserve Risk (C-4) ABC Insurance Group Capital Adequacy Model Reserve Risk For: Homeowners / Farm Owners / Personal Auto 62.1 Auto Liability4.0 Combined 2 Year Lines / International33.5 Commercial Auto Liability22.6 Commercial Liability100.8 Commercial Multiple Peril35.5 Workers’ Compensation75.6 Reinsurance0.9 Analyst’s Adjustment For Reserve Risks0.0 Not Already Captured Total Required Capital For Reserve Risk 335.0

12 Reserve Risk (C-4) ABC Insurance Group Capital Adequacy Model Reserve Risk For: Homeowners / Farm Owners / Personal Auto 62.1 Auto Liability4.0 Combined 2 Year Lines / International33.5 Commercial Auto Liability22.6 Commercial Liability80.8 Commercial Multiple Peril35.5 Workers’ Compensation70.6 Reinsurance0.9 Analyst’s Adjustment For Reserve Risks0.0 Not Already Captured Total Required Capital For Reserve Risk 310.0

13 Other Risk (C-5) ABC Insurance Group Capital Adequacy Model Business Risk & Other LOBs 47.5 Not Already Captured

14 ABC Insurance Group Capital Adequacy Ratio Capital Adequacy Ratio = Risk Adjusted Capital ÷ Required Capital 140% = 1,081.9 ÷ Required Capital = Underwriting Risk + Reserve Risk + Other Risks = Risk Adjusted Capital = Total Adjusted Capital – Asset Risk – Credit Risk 1,081.9 = 1,454.9 – – 59.6 Implied Capital Adequacy: “A”

15 ABC Insurance Group Capital Adequacy Ratio Capital Adequacy Ratio = Risk Adjusted Capital ÷ Required Capital 160% = 1,194.9 ÷ Required Capital = Underwriting Risk + Reserve Risk + Other Risks = Risk Adjusted Capital = Total Adjusted Capital – Asset Risk – Credit Risk 1,194.9 = 1,561.9 – – 53.6 Implied Capital Adequacy: “AA”

16 COMPARISON OF RESULTS

17 Impact On Ratings n Model Is One Of Many Factors Assessed In Arriving At Opinion Of Capital n Capital Is One Of Many Factors Assessed In Arriving At Financial Strength Rating n Other Key Areas - Management & Corporate Strategy - Business Profile - Operating Performance - Financial Flexibility


Download ppt "Capital Models and Their Relationship With Loss Reserving Joanne Balling, ACAS Director."

Similar presentations


Ads by Google