13. Ongoing Solvency

Question 1

Reason for holding capital/ free assets

(Some points similar to reasons for monitoring ongoing solvency)

Answer 1

REG CUSHION

• Regulatory requirement
• Enable less RI to be purchased
• Guarantees offered
• Cashflow timing management
• Unexpected experience cushion
• Smooth profits: surplus dbn and dividends
• Help demonstrate financial strength
• Investment freedom mismatch
• Opportunities exploit
• New business strain finance

Question 2

Principles underlying framework for financial soundness

FSI 1, Section 4.1

Answer 2

• OF sufficient quality and quantity to absorb unforeseen significant losses
• risk tolerance defined ito insurers being able to maintain regulatory solvency in event of adverse scenarios
• required capital calculation should be risk-based and forward-looking
• assets, liabilities valued on market-consistent basis
• level of regulatory capital address risk areas insurers exposed to
  
  • proportionate to nature, scale, complexity of business involved
• correlations between risk, including benefits of diversification should be allowed for
• trigger levels of EOF relative to required capital, below which regulatory intervention will occur