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Risk Insolvency Help?

Holding more economic capital reduces the risk of insolvency for an insurer. Should insurers hold sufficient capital to reduce insolvency risk to zero? Why or why not ?

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3 Responses to "Risk Insolvency Help?"

  1. mbrcatz says:
    I don’t know how they could pull this off – limiting the writing capacity to cover 100% of the combined policy limits, is going to severely restrict the market share capacity.

    Bottom line – not, because it’s not economically feasible.

  2. Insurancetips says:
    This is not economically feasible. The combined claims ratio will never allow this to be true. Higher reserves would not give higher returns and the long term growth of the company is affected.
  3. Dustin says:
    It’s actually not as simple as capital to value of policies sold.

    A large amount of the premium goes into buying re-insurance to offset the hit in the even of a loss. A companies ability to pay is going to be directly related to the amount of re-insurance it carries.

    Until recently, companies would spend most of the premium amount buying re-insurance and paying agents, actuaries, and marketing reps. All their money was made on the investment side, while they are holding your money. Risk of insolvency was low because they were making enough money to buy the proper amount of re-insurance. That is not the case now. Use AM BEST as a guide when looking at the potential for insolvency.

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