Capital modelling
Capital follows risk.
An evaluation of a business’ capital requirements is predicated on understanding the structure of the portfolio in question, the operating environment and the interaction of the various economic and risk drivers.
Globally insurance and finance regulators appear to be converging on a risk-based capital regime.
In the Europe, Solvency 2 places a considerable burden on management to, in some sense, set their own regulatory capital. Consequently the regulator’s job has become more difficult as there is no generic format for the capital model.
The learning experience is likely to be painful for a couple more years but the outcome is likely to result in more well developed business planning models, realistic underwriting expectations and better risk management measures
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