A solvency study in non-life insurance

Publisher Website
Google Scholar
Abstract
This paper provides examples of solvency margin requirements in non-life insurance on the basis of statistical analyses described in a previous paper. It is illustrated how the solvency margin required depends on portfolio composition and volume, reinsurance, time horizon, probability of ruin and the values of some of the basic parameters. The results indicate, depending on the assumptions, that solvency margins between 8% and 28% of the premium income is necessary to cover the random fluctuations in the cost of claims. However, statutory requirements should be higher because they should also to some degree protect the policyholders against inadequacy of the safety loadings used by the insurer. The paper demonstrates that margins between 25% and 43% of the net premium income provide protection against the randomness of the insurance business as well as reasonable protection against inadequate safety loadings.