What are the three types of regulatory action a DOI can impose on weak insurers?
Mandatory action level
Administrative supervision
Receivership (bankruptcy)
When is receivership imposed?
when mandatory corrective action and supervision both fail
When regulator says there’s no way it can succeed
What is a guaranty fund?
administered by each state to protect policy holders from insolvency.
Pays claims and refunds premium
How does a state guaranty fund work?
funded by all insurers
solvent insurers pay 1-2% of NWP to the fund
What are the 3 pillars of solvency 2
Quantitative - sets solvency capital requirement and minimum capital requirement
Governence
Transparency
Other reasons for insolvency
DUNG CRAP
Deficient reserves
Underpricing
New entrant to market
Growth too rapid
Catastrophe
Reinsurer insolvency
Asbestos
Poor investment results
What is the liability side of IFRS assets available composed of?
Free surplus
SCR - MCR
MCR
risk margin
Best est of liabilities
risk margin + best est of liabilities = technical provisions
RBC vs solvency II
solvency II is principle based vs RBC rule based
RBC is not based on modeled results
solvency II can be tailored towards individual companies
what are the action levels of solvency II?
if IFRS >= no action
if MCR < IFRS Assets < SCR - regulator will intervene
if IFRS assets <= MCR then company not permitted to operate
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