Page 20 - Insurance Times July 2019

7. Shareholder’s Funds
Paid Up Capital
+ Capital Reserves
+ Revenue Reserves

+ Consolidated Profit
= Shareholder’s Equity
8. Solvency Margin for Reinsreres
Shareholder’s Funds 100
x = Solvency Margin %
Net Premium 1
Determinents Solvency Margin
a) Macro Factors Management Decisions

GDP Income Expenditure i.e.
a prudent underwriting policy of Munich Office
Inflation Net Operating Expenses
Underwriters. Risk above 50th floor of WTC Towers
Expenditure
were underwritten by American Re’s Underwriters say
Interest Rate
with a share of 10% on 25% PNL Limits. According to
Income Expenditure German Underwriters in Munich, 25% PML was too low.
S M
They reduced their share to 5% and reduced their
Earned Premium O A Incurred Losses
exposures. Prudent Underwriting reduced Munich Re’s
Interest Income L R Cost including taxes
losses of WTC Attack.
V G
Net Investment Income Dividends
E I 2. Territorial Scope of Reinsurances accepted by any Third
Realised Capital Gain World Reinsurers must excluded USA/Canada. USA
N N
C Risks Underwritten with full capacity resulted into GIO
Y Re’s insolvency.
3. Proportional Treaties involve UNKNOWN,
Regulatory Provisions
UNCONTROLLED and UNLIMITED Accumulation in the
= Capital Changed Trends of
event of a Natural Catastrophe loss. Therefore,
Losses e.g
reinsurers must provide for a CAPPING OF EVENT OF
= Technical Reserves Natural Disaster or
LOSS, thus, limiting any one event of loss.
= Investments Man-made Catastrophe
4. Earthquake, storms and floods premium must be
= Price and Product
without Profit Commission and with lowest commission
Regulations
in a Proportional Treaty.
Shareholder’s Funds x 100
5. Developing Market Companies place their Reinsurance
Net Premium 1
Treaties on Bouquet basis. Reinsurance Company must
= S.M. Ratio
ascertain overall Profitability of entire bouquet.
Acceptance/Renewal must be with overall profitability.
9. A Continuous Process of Security & Solvency Check
6. Foreign Inward Reinsurance Portfolio of Treaty and
should be in place.
Facultative business must have:
10. A Good Security is a Matter of Opinion
Transparency
A Bad Security is Matter of Fact
Aggregate Exposure Data and
C. Underwriting Norms Accumulation Assessment Excercised every year.
1. WTC Attack affected Munich Re for around US$ 2500 7. Accounting and Remittance situation must be remedied
million. The loss could have been much more without by PPW Premium Payment Warranties, Loss
20 The Insurance Times, July 2019