Chapter 24 - Supervisory reserves and capital requirements (2) Flashcards

1
Q

How can the supervisory authority’s primary concern be to ensure that insurance companies have sufficient assets to cover liabilities with a high degree of certainty

A
  • Requiring insurance companies to hold reserves calculated on a prudent basis
  • Requiring a minimum level of solvency capital to be held
  • Requiring a combination of prudent reserves and solvency capital to be held
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is market-consistent value of a liability

A

It is the price that someone would charge for taking responsibility for ( the ownership) of the liability, in a market in which such liabilities are freely traded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What rates of return are used in the market-consistent valuation

A

The risk-free rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the illiquidity premium

A

It is the part of the yield that represents the illiquidity of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the purpose of solvency capital requirements

A

It is seen as providing an additional level of protection to policyholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is an example of a risk-based solvency capital requirement

A

The VaR measure, normally expressed at a minimum required confidence level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the formula for the aggregated capital requirement

A

SQRT(SUM(Corr ij x Cap i x Cap j))

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is a passive valuation approach

A

It is an approach that uses a valuation methodology which is relatively insensitive to changes in market conditions and a valuation basis which is updated relatively infrequently
- The assumptions for mortality and expense inflation would rarely change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the advantages of using a passive valuation approach?

A
  • More straightforward to implement
  • Involves less subjectivity
  • Result in relatively stable profit emergence ( to the extent they are used for accounting purposes)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the disadvantages of passive valuation approach

A
  • Becoming out of date
  • Insensitive to changes in market conditions and has a valuation basis that is updated relatively infrequently
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is active valuation approach

A

It is based more closely on market conditions, with assumptions being updated frequently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the advantages of using an active valuation approach

A
  • More informative in terms of understanding the impact of market conditions on the ability of the company to meet its obligations, particularly in relation to financial guarantees and options
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the disadvantages of active valuation approach

A
  • Results are more volatile
  • More complex than passive valuation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly