Capital and Surplus Flashcards
1
Q
Purpose of capital
A
- demonstrate financial Strength
- Opportunities (ventures like mergers/acquisitions)
- cover Unexpected events
- Smooth dividends/bonuses
- Start-up capital
- Statutory capital (regulatory)
- Investment freedom (mismatching)
- allow company to offer Guarantees
- on-Going capital needs (working capital)
2
Q
Improving solvency position
A
-FinRe (and reinsurance) -Equity (increase income/decrease outgo) -Sub-ordinated debt -Securitisation (if asset for which profits only emerge later) -Internal methods ( **Merging funds **changing Assets (to be better matched or admissible) **defer Surplus distribution **change valuation basis by reducing discretionary Margins )
3
Q
Reasons for analysing surplus
A
- showing financial effect of Divergences between actual and expected experience
- provide management Information
- show how Variance of the surplus components is complete description of the whole
- give information on trends in Experience (#acc)
- Reconcile values for successive years
- Group into recurring/non-recurring components of surplus
- provide data for Executive remuneration schemes
- show financial effect of writing New business
- Check calculations and assumptions
- Extra check on valuation data and process (if done independently)
- Provider’s accounts
4
Q
Sources of surplus/deficit
A
- -Withdrawals/lapses
- -Investment income + gains
- -Mortality
- -Morbidity
- -Inflation
- -New business levels
- -Salary growth
- -Expenses
- -Commission
- -Taxation
- -Premiums/contributions
- -Claim amounts
5
Q
Levers on surplus/profit
A
- -reduce Likelihood of claims
- -reduce claim/benefit Amounts
- -control Expenses
- -increase Renewals
- -reduce Lapses
- -follow Investment policy that increases returns (for risk appetite)
- -adopt effective Tax management policy
6
Q
Distributing surplus
A
- -Regulation
- -Source of surplus
- -Pace of distribution
- -Rankings & Risk Exposure of stakeholders
