35 Insolvency & Closure Flashcards
1
Q
Insurance company become insolvent [5]
A
DEF: ¹ unable to meet its L when they fall due or ² L>A
Unlikely due to:
- regulator monitor regularly - min solvency cap requirement
If position serious regulator need to protect existing and potential policyholders so can:
* close to new business
- last resort as likely not reopen
- exept if L is due to huge # sold
and recover when strain
released
- not reopen till min cap met
* most cases require comp to
have recovery plan
- regulator monitor closely
- comp need to show
progressive progress
Company can:
\+ lose staff, premises, system so
extra cost not eat into cap
\+ have more new business strain
cap available due to close
or limit new business
\+ increase reinsurance
\+ change invest strategy for
better match
* now meet capital
\+ but long run diseconemies of
scale will bite in future
- model to see improvement
considering:- post tax profits
- current value of all A
- amount & timing of debt
- problems with HR, unions
- extra strain staff benefits
- interest & tax
- insurer can be sold or merged
- New Parent comp need consider
- location
- staff training
- integrating systems
- effect on unit cost
2
Q
Closure of Benefit Scheme
A
TYPES: * close to new members but existing members benefit continue to accrue * close to new and no more accrue of existing
CLOSE DUE:
- insolvent sponsor
- sponsor decision to stop
LEVEL BENEFIT PAID DEPENDS:
- rights of beneficiaries
- expectations of beneficiaries
- level of A
AT END TIME SCHEME CAN BE: * underfunded, consider who gets what and calculation expense * overfunded, extra back to sponsor or improve benefits
OPTIONS IF SCHEME DISCONTINUE * continue scheme without any further accruel * transfer all L to nother scheme under same employer * payout in cash to extinguish L * transfer to insurer to guarantee the L * transfer to insurer in policyholders name * transfer to new employer
