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Explore the essential concepts of non-life insurance ratios, including solvency margins, coverage ratios, and quality of capital. Learn about leveraging capital, compliance with legal requirements, and different forms of capital in the insurance industry.
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A Primer on Non-Life Insurance Ratios Craig Thorburn Cthorburn@worldbank.org
Premiums and Capital • Kenney Rules, Leverage, Capital as a percentage of premium
Provisions and Capital • A response to the fact that companies need capital until all claims are finalized and paid.
Solvency Margin Requirements • A basic index type solvency margin • Alternative approaches may use a different formula
Coverage Ratio • Checks measure of actual solvency against a standard base. • If required solvency is the legal requirement then the ratio should be >100%, preferably with a buffer.
Quality of Capital • Capital can come in different forms from pure equity to less permanent subordinated debt, for example. • Some reinsurance contracts may supply a form of capital. • Where there is more than one form then it is useful to separate out the components and compare “core” capital as well as “total capital”.