Solvency of Insurance Undertakings (Mueller-Report) - Eiopa

- 47 -- inappropriate capital structure;- steady decline in own funds;- high balance sheet losses;- insolvency and bankruptcy.3.2.2 Causes of difficultiesThe most frequently cited causes of difficulties were:- inappropriate underwriting policy (quantity rather than quality: cash flowunderwriting), together with insufficient provision especially in the liability, accidentand credit/ fidelity branches;- poor management (including management information system failure);- inadequate investment policy (e.g. over-reliance on real estate assets, whose valueslumps following the collapse of national property markets; losses on guaranteebusiness; losses on equity interests - including in affiliates - as a result of contagion;use of high-risk investments);- insufficient provisions for unsettled claims (especially in long-tail business), in orderto keep the solvency ratio low;- lack of an appropriate reinsurance policy (quality of the assignee) and of an effectivereinsurance system providing sufficient protection, e.g., in the event of major andnatural disaster claims (key concept: community between initial insurer and reinsurer);- general under-capitalisation with regard to underwritten risk;- high losses due to rapid growth (especially as a result of underwriting bad risks, linkedto a considerable extent to high transaction costs and the miscalculation ofpremiums);- poor risk performance;- criminal enterprise (both in-house and externally, e.g., by brokers);- double gearing.