Page 107 - Risk Management in current scenario
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Risk Based Capital over
Traditional Approach in
Insurance Sector
Introduction
Strong Solvency of insurance companies is important for both the
regulator and the policyholders. Financially strong insurance industry not
only helps in increasing insurance penetration and economic growth but
also help in building the trust of the people on the social security fiber
of the country. Regulators over the time have made changes in the
regulation to make insurance industry financially strong. The recent
regulatory changes across the globe have led to determining solvency
capital as a function of risks that insurance companies face rather than a
simple formula. The article discusses how risk diversification and risk
management helps in optimizing the solvency capital.
How the solvency position of the insurance
companies is assessed?
Every insurance Company keeps reserves to meet the future liabilities that
will arise in a form of death, maturity or surrenders and this is because
annual level premium charged is not commensurate with incidences of
expenses and claim arising. The reserves are kept based on prudential
regulatory norms. However, regulators also prescribe additional money
that the insurance companies must keep aside in a form of solvency
capital to meet the contingency.
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