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Solvency margin funding for general insurance companies

Published online by Cambridge University Press:  20 April 2012

G. C. Taylor
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Extract

In Australia, the Insurance Acts 1973 introduced the formal requirement of a solvency margin. The solvency margin required by Statute is a proportion (15% in fact) of net premium written in the last completed financial year. Since then, there has been a certain amount of discussion on the means of funding that margin under expansionary conditions.

The vicissitudes of the discussion in Australia and the United Kingdom have been as follows.

At first, it appeared unquestioned that increases in solvency margin must be financed effectively by premium loadings. For example, Loader and Ryder (1976) state flatly that “The increase in solvency margin must be met from profit earnings”. The ideas of Loader and Ryder were adopted as a point of departure by Cooper and Long (1977). Basically the same theme was presented by Eriksen and Jones (1977).

Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 111 , Issue 1 , June 1984 , pp. 173 - 179
Copyright
Copyright © Institute and Faculty of Actuaries 1984

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