Capital Requirements for Insurance Companies

Capital Requirements for Insurance Companies

Midwestern Actuarial Forum

Barry Zurbuchen

Spring 2002

Aon Re Services, Inc.

?

Aon

Aon Re

Re Services,

Worldwide

Inc.

1

Proprietary and Confidential

Agenda

? NAIC Risk-Based Capital Requirements ? A.M. Best and S&P Capital Models ? Using DFA for Setting Capital Level

Aon Re Services, Inc.

Aon Re Services, Inc.

2

Proprietary and Confidential

How Much Capital Should We Have?

? Premium to Surplus ? Reserves to Surplus ? NAIC Risk Based Capital Requirement ? Rating Agency Capital Adequacy Models ? Dynamic Financial Analysis

? Only Provides Distribution of Outcomes ? Answer Dependant on Criteria Used

Aon Re Services, Inc.

Aon Re Services, Inc.

3

Proprietary and Confidential

NAIC Risk Based Capital

? Goals of NAIC RBC Requirement

? Relate capital and surplus requirements of an insurer to the risks inherent in its particular operations

? Establish a universally recognized capital standard ? Provide regulators with the authority to enforce

compliance with more appropriate capital requirements

Aon Re Services, Inc.

Aon Re Services, Inc.

4

Proprietary and Confidential

NAIC Risk Based Capital

? R0 Off Balance Sheet ? R1 Fixed-Income Securities ? R2 Equity Securities ? R3 Credit ? R4 Loss and LAE Reserves ? R5 Net Written Premium

Aon Re Services, Inc.

Aon Re Services, Inc.

5

Proprietary and Confidential

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