Implementation and Uses of Economic Capital ... - ERM Symposium
Implementation and Uses of Economic Capital ... - ERM Symposium
Implementation and Uses of Economic Capital ... - ERM Symposium
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Assessment <strong>of</strong> Financial Strength <strong>of</strong> P&C Insurers - Reserve<br />
Risk Required <strong>Capital</strong> : One-Year vs. Run-Off<br />
Does use <strong>of</strong> a common (e.g. 5, 10, 30 year) projection period, result in an apples-to-apples<br />
comparison <strong>of</strong> financial strength <strong>of</strong> P&C insurers with vastly different run-<strong>of</strong>f pr<strong>of</strong>iles?<br />
Source : AIG Analysis <strong>of</strong> Schedule P Data as at Dec, 31, 2006<br />
Comparison <strong>of</strong> Coefficients <strong>of</strong> Variation<br />
8%<br />
6%<br />
4%<br />
2%<br />
0%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
6%<br />
7%<br />
One Year Run-Off<br />
20%<br />
40%<br />
One Year Run-Off<br />
Short Tail<br />
(PPA)<br />
Long Tail<br />
(Excess WC)<br />
100%<br />
80%<br />
60%<br />
40%<br />
20%<br />
0%<br />
60%<br />
Commercial<br />
Lines<br />
Dominance<br />
- ILLUSTRATION -<br />
Comparison <strong>of</strong> <strong>Capital</strong> Requirements: One-Year<br />
% <strong>of</strong> Run-Off <strong>Capital</strong> Required<br />
80%<br />
US P&C<br />
Industry<br />
90%<br />
Personal<br />
Lines<br />
Dominance<br />
16 16
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