financial condition reporting for south african short term insurers emile stipp sam isaacson 24...
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Financial Condition Reporting for South African Short Term Insurers
Emile Stipp
Sam Isaacson
24 November 2005
2 Financial Condition Reporting for South African Short Term Insurers
• Background and scope
• Overall framework
• Insurance capital charge
• Investment capital charge
• Putting it all together
• Reserves
• Results
• Recommendations
• The way forward
Contents
3 Financial Condition Reporting for South African Short Term Insurers
Background and scope
4 Financial Condition Reporting for South African Short Term Insurers
Where it all started
• Started at the end of 2001
• Current “one size fits all” approach does not make sense – move to a risk-based approach
• Paper presented at ASSA convention in 2002
• Working group discussed initial draft guidelines and made various changes
• Tender for recalibration sent out in November 2004, awarded to Deloitte AIS & Insight ABC in March 2005
5 Financial Condition Reporting for South African Short Term Insurers
Terms of reference, reliances and limitations
• Deloitte and Insight ABC appointed by FSB to calibrate formulae for Financial Condition Reporting for Short Term Insurance industry in SA
• Hence:– Construct formula– In accordance with industry data in STAR returns– And principles of Dynamic Financial Analysis – And recommend new capital requirement for Short Term Industry: the
“Industry Calibration”
• The main limitations:– Data not contained in STAR returns, particularly in respect of non-proportional
reinsurance– Inaccurate data
• Held an industry workshop introducing concepts on 11 August
• Sent two sets of individual results to each company in South Africa
• Had meetings with individual companies, reinsurers, cell captives and Actuarial Society STIC for feedback
6 Financial Condition Reporting for South African Short Term Insurers
Terms of reference, reliances and limitations
• This is an industry calibration – there will always be “overs and unders”
• The question is whether it is more accurate than 25% of net written premium currently required
• The model does not guarantee solvency under all circumstances
• And individual results for individual companies may be more or less appropriate depending on unique factors
• Some companies with specific needs:– Reinsurers– Cell captives– Those operating on behalf of Government, with effective Government
guarantees– Selected companies in niche markets
• Models could not be calibrated for each of these separately due to:– Lack of homogeneity– Lack of data
7 Financial Condition Reporting for South African Short Term Insurers
Overall framework
8 Financial Condition Reporting for South African Short Term Insurers
The three models
Increasing Complexity
Increasing Cost
Increasing usefulness in risk management
Increasing Appropriateness for Individual Company
Industry Calibration Certified Model Internal Model
9 Financial Condition Reporting for South African Short Term Insurers
The three models
Industry Calibration Certified Model Internal Model
Necessarily approximate
Must be prudent for all companies
May not be appropriate for circumstances of individual companies
More precise for liabilities & individual
circumstances of companies
Involves judgment
Hence requires professional certification
Maximum precision for liabilities and assets
Also requires professional certification
Leads to greatest understanding of risks
Provided models are transparent & realistic
10 Financial Condition Reporting for South African Short Term Insurers
Compared against current model
• The above framework is preferable, as the current model does not take into account:– Risks faced by company: classes of business written, size of insurer,
combination of classes, details of reinsurance programme, expenses etc
• And requires level of capital which is prudent for some and not prudent for others
• Advantage of current model: it is simple
• We hope that industry calibration will be simple to apply in practice as it can be built into STAR returns
• And hence not require companies to apply detailed formulae
• And they can test different levels of capital required under different circumstances
• Industry calibration is balancing act between:– Greater complexity due to desire to allow for individual circumstances of
companies VS– Desire for simplicity
11 Financial Condition Reporting for South African Short Term Insurers
Schematic representation of framework
Fair value of assets
Excess assets
Fair
valu
e o
f adm
issable
assets
Liabilities
Consists of best estimate plus additional prescribed
margins. P rescribed method or internal
model method.
Minimum capital requirementMinimum of R10m. P rescribed basis.
Internal model method.
Free assets
Ris
k m
an
agem
en
t
Financial condition report
12 Financial Condition Reporting for South African Short Term Insurers
Comparisons
• The above approach is consistent with international trend towards risk-based capital. Adopted, among others, by:– Australia, USA, UK, Germany, Switzerland, Canada, Holland
• Also in line with principles established by International Actuarial Association
• And in line with investment capital charge adopted for long term insurers
13 Financial Condition Reporting for South African Short Term Insurers
Components of the framework
• Capital charge– Insurance capital charge
– Investment capital charge
• Reserving– Best estimates
– Prescribed margins
14 Financial Condition Reporting for South African Short Term Insurers
Data
• Intensive data cleansing process
• Used data from 1075 STAR returns
15 Financial Condition Reporting for South African Short Term Insurers
Insurance capital charge
16 Financial Condition Reporting for South African Short Term Insurers
Insurance Capital Charge
• Two primary investigations of Star return data:– Underwriting risk (ULR)
– Reserving risk
• Using net ULR and net reserving risk measures
• But calibrated to gross written premium (GWP) and gross unearned premium (GUPR)
• GWP is estimated for year following date of solvency calculation
• And GUPR can be regarded as looking back
• building blocks approach
• Determined initially for each of the 8 classes of business on a stand-alone basis
17 Financial Condition Reporting for South African Short Term Insurers
Insurance Capital Charge
18 Financial Condition Reporting for South African Short Term Insurers
Insurance Capital Charge
DFA
Engine
Underwriting Risk Reserving
Risk
Gross Written Premium
Gross Unearned Premium
Simulation Results
19 Financial Condition Reporting for South African Short Term Insurers
Insurance Capital Charge
• We ran model for notional companies and used interpolation to determine results for particular company
20 Financial Condition Reporting for South African Short Term Insurers
ULRs - means
• For all classes of business, relationship between mean ULR and GEP
ULR mean - All classes
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
- 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000
Gross earned premium (R'000)
Mean
Motor
Property
Transport
Accident
Guarantee
Liability
Engineering
Misc
21 Financial Condition Reporting for South African Short Term Insurers
ULRs – standard deviation
• For all classes of business, relationship between std dev ULR and GEP
ULR standard deviation - All classes
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
- 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000
Gross earned premium (R'000)
Sta
nd
ard
devia
tio
n
Motor
Property
Transport
Accident
Guarantee
Misc
Liability
Engineering
22 Financial Condition Reporting for South African Short Term Insurers
Underwriting cycle
• Allowed for implicitly. Evidence of cycle:
Average annual ULR
68%
78%77%
91%92%
72%
117%
80%
70%
104%
91%
69%
65%
59%
67%
40%
50%
60%
70%
80%
90%
100%
110%
120%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
23 Financial Condition Reporting for South African Short Term Insurers
Reserving risk
• Expresses development of claims relative to reserves
Reserving ratio distribution - Motor
0%
2%
4%
6%
8%
10%
12%
14%
0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
2.7 3
3.3
3.6
3.9
4.2
4.5
4.8
5.1
5.4
5.7 6
6.3
6.6
6.9
7.2
7.5
7.8
8.1
8.4
8.7 9
9.3
9.6
9.9
Reserving risk
24 Financial Condition Reporting for South African Short Term Insurers
Reserving risk
• Expresses development of claims relative to reserves
Reserving ratio distribution - Motor
0.0
5.0
10.0
15.0
20.0
25.0
- 100 200 300 400 500 600
Gross claims reserve (R'000)
Reserving risk
Coefficient of variation
25 Financial Condition Reporting for South African Short Term Insurers
Required number of simulations in DFA model
• Determined for each level of sufficiency – in the end ran 79.2m simulations
26 Financial Condition Reporting for South African Short Term Insurers
Stand-alone capital
• Gross stand-alone capital – surface at 99.5% sufficiency
0
1
2
5 13
30
71 166 38
8 910
2133 50
00
-
0 1
2 5
14 3
7
101
276
750
-
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
GWP (R'mil)GUPR (R'mil)
99.5% Capital curve - Motor
27 Financial Condition Reporting for South African Short Term Insurers
Diversification and correlation
• Allowed for explicitly
• And on the basis of data
• Writing more than one line of business – reduces capital requirements (diversification effect)
• Correlations between lines of business – generally increases capital requirements (correlation effect)
• This should discourage companies from “dumping” everything into the Miscellaneous class
• Finally, there is allowance for investment return on assets backing liabilities to reduce insurance capital charge
28 Financial Condition Reporting for South African Short Term Insurers
Investment capital charge
29 Financial Condition Reporting for South African Short Term Insurers
Overview
• To allow for fact that assets backing liabilities and capital may decrease in value to such an extent that solvency is threatened
• Hence, to the extent that market asset values are subject to variation, additional assets need to be held
• We performed this analysis using internationally the recognised Smith Model (TSM) – stochastic asset model calibrated for South African market
• For different types of asset, determined additional assets to be held, at different levels of sufficiency
• First step is allocation exercise – least risky assets allocated first (cash)
• If particular asset “runs out”, allocate from more risky assets
• Order of riskiness: Cash, bonds, property, equity, other assets
30 Financial Condition Reporting for South African Short Term Insurers
Equity example
• Equity factors at different levels of sufficiency:
Adverse scenario 99.5% 99% 98% 95% 99.5%
J une05
Immediate fall in asset value 16.6% 14.5% 12.5% 9.5%
Fall in asset value in the first year 38% 34% 29.8% 23% 36.7%
Fall in asset value in the first 5 years
55.3% 47.9% 39.2% 29% 51%
31 Financial Condition Reporting for South African Short Term Insurers
Other risks to allow for?
• Operational risk:– Allowed for implicitly
– If operational risk can be measured, company should do something about it rather than setting aside additional capital
– Unfair to penalise whole industry for operational inefficiencies in some companies by requiring everyone to set aside additional capital for operational risk
– Also, did not have sufficient data to make explicit allowance for operational risk
32 Financial Condition Reporting for South African Short Term Insurers
Putting it all together
33 Financial Condition Reporting for South African Short Term Insurers
Framework
• Insurance and Investment Capital Charges are combined recognising that there is some correlation between insurance and investment risks, but not 100%
• And capital should be grossed up to allow for type of investments
• Allowed for in formula:
• But only 50% of g2 allowed for
• This is similar to the intended approach in Germany, as it deals with fact that insurance catastrophe may well affect investment market, but investment market crash may have no relation to insurance risks
2
2
2
1
g
ICCg
ACCTCR
Financial Condition Reporting for South African Short Term Insurers34
Reserving
35 Financial Condition Reporting for South African Short Term Insurers
Liability estimation: IBNR and OCR
• IBNR:– Use best estimate
– Table determined for companies who do not do own IBNR calcs:
– Percentage of claims run off after each year:
• OCR:– Companies’ case estimates
Class of business 1 2 3 4 5 6
Accident 9.00% 2.90% 0.94% 0.30% 0.10% 0.03%
Engineering 8.67% 2.57% 2.04% 1.99% 1.98% 1.98%
Guarantee 24.92% 5.46% 1.39% 0.54% 0.36% 0.33%
Liability 17.01% 3.73% 1.32% 0.89% 0.81% 0.80%
Miscellaneous 7.30% 1.01% 0.29% 0.20% 0.19% 0.19%
Motor 4.33% 0.63% 0.31% 0.28% 0.28% 0.28%
Property 6.14% 0.43% 0.12% 0.10% 0.10% 0.10%
Transport 9.71% 3.40% 1.69% 1.22% 1.10% 1.06%
36 Financial Condition Reporting for South African Short Term Insurers
Liability estimation: Prescribed Margin
• Added to IBNR and OCR best estimates
• To take up to 75th percentile
• Based on formula:
• Where:
Class of business a b c
Accident -2.22 2.80 -0.01
Engineering -1.32 1.61 0.00
Guarantee -7.47 8.22 -0.01
Liability -1.29 1.60 0.00
Miscellaneous -4.75 5.57 -0.01
Motor -1.86 2.56 -0.02
Property -3.65 4.48 -0.01
Transport -15.67 16.30 0.00
37 Financial Condition Reporting for South African Short Term Insurers
Liability estimation: UPR
• Aim is also to have best estimate
• But if UPR calculated using 365ths method, already includes margin of prudence given that premium includes profit margin
• We have assumed this margin takes us up to 75th percentile
• But still need to estimate the implicit margin for giving credit towards total capital requirements…
))(1,0(_ cGEPbaMAXPMUPR
38 Financial Condition Reporting for South African Short Term Insurers
Recap: we have all elements of framework:
Fair value of assets
Excess assets
Fair
va
lue o
f a
dm
issa
ble
assets
Liabilities
Consists of best estimate plus additional prescribed
margins. P rescribed method or internal
model method.
Minimum capital requirementM inimum of R10m. P rescribed basis.
Internal model method.
Free assets
Ris
k m
an
agem
en
t
Financial condition report
39 Financial Condition Reporting for South African Short Term Insurers
Results of calibration
40 Financial Condition Reporting for South African Short Term Insurers
Overall results: reserves
Best estimatesPrescribed
marginsPrescribed
Reserves CurrentCaptive 193,000 53,320 246,319 183,929 Cell Captive 523,029 112,525 635,554 565,731 Niche 1,050,541 209,751 1,260,292 1,718,092 Not Completing Quarterlies 27,179 7,006 34,185 27,049 Reinsurer 1,422,776 241,520 1,664,296 2,078,296 Run-off 104,869 28,458 133,327 99,604 Typical 5,303,070 827,431 6,130,501 5,350,403 Industry total 8,624,464 1,480,010 10,104,474 10,023,105
RESERVES (OCR + IBNR) (R'000)
Current reserves versus Prescribed reserves
(R'000)
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Captive Cell Captive Niche NotCompletingQuarterlies
Reinsurer Run-off Typical
Current
75% Reserve
41 Financial Condition Reporting for South African Short Term Insurers
Overall results: reserves
• Reserves may be understated for niche insurers and reinsurers – due to longer run-off patterns – inadequate data to calibrate separately for them…
Best estimate Current
Accident 113,677 98,104.33 Engineering 134,467 78,705.55 Guarantee 232,269 606,102.34 Liability 191,315 249,502.96 Miscellaneous 311,940 839,597.68 Motor 678,286 950,872.11 Property 627,814 891,019.57 Transport 125,721 100,224 Industry Total 2,415,488 3,814,129
I BNR RESERVES COMPARISON (R'000)
Best estimate Current
Accident 321,425 305,852.05 Engineering 297,190 241,428.93 Guarantee 545,009 918,842.60 Liability 1,155,580 1,213,767.56 Miscellaneous 1,267,628 1,795,284.90 Motor 2,583,686 2,856,271.98 Property 2,089,899 2,353,104.46 Transport 364,049 338,552 Industry Total 8,624,464 10,023,105
TOTAL CLAIMS RESERVES COMPARISON (R'000)
42 Financial Condition Reporting for South African Short Term Insurers
Overall results: MCR
Max(25% NWP ; R10m )
Shareholders' assets (ADJ ) 98% 99% 99.5%
Captive 120,000 804,082 276,783 386,147 504,384 Cell Captive 607,610 1,251,633 1,814,739 2,286,898 2,777,127 Niche 744,566 4,666,716 3,640,569 4,765,818 6,011,319 Not Completing Quarterlies 40,823 1,451,276 103,592 133,104 162,358 Reinsurer 466,274 1,629,471 1,109,693 1,453,753 1,818,831 Run-off 133,640 2,237,153 166,571 186,430 208,489 Typical 5,656,747 13,559,328 8,079,593 10,236,640 12,520,463 Industry total 7,769,660 25,599,659 15,191,542 19,448,789 24,002,971
MINIMUM CAPITAL REQUIRED (R'000)
43 Financial Condition Reporting for South African Short Term Insurers
Overall results: Total Capital Required (MCR + PM)
98% 99% 99.5%Captive 333,413 442,777 561,014 Cell Captive 1,986,906 2,459,064 2,949,293 Niche 3,895,111 5,020,360 6,265,862 Not Completing Quarterlies 112,266 141,778 171,032 Reinsurer 1,385,200 1,729,259 2,094,337 Run-off 195,086 214,944 237,004 Typical 9,135,788 11,292,835 13,576,658 Industry total 17,043,769 21,301,017 25,855,199
TOTAL CAPITAL REQUIRED (R'000)
44 Financial Condition Reporting for South African Short Term Insurers
Comparison: different levels of sufficiency
45 Financial Condition Reporting for South African Short Term Insurers
Comparison with adjusted shareholders’ assets
• Adjustment takes into account prescribed reserving method and a release of the 10% contingency reserve
• Only show companies with shortfall – several have adequate capital…
98% 99% 99.5%Captive 5,492 42,151 93,715 Cell Captive 574,307 1,046,465 1,536,322 Niche 1,335,832 1,995,433 2,762,071 Not Completing Quarterlies 7,756 7,756 7,756 Reinsurer 7,122 122,695 269,971 Run-off 83,985 103,843 125,903 Typical 736,897 1,612,240 2,775,940 Industry total 2,751,391 4,930,583 7,571,677
SHAREHOLDERS' ASSET (ADJ ) SHORTFALL TO MINIMUM CAPITAL REQUIREMENT (R'000)
98% 99% 99.5%Captive 0.7% 5.2% 11.7%Cell Captive 45.9% 83.6% 122.7%Niche 28.6% 42.8% 59.2%Not Completing Quarterlies 0.5% 0.5% 0.5%Reinsurer 0.4% 7.5% 16.6%Run-off 3.8% 4.6% 5.6%Typical 5.4% 11.9% 20.5%Industry total 10.7% 19.3% 29.6%
SHAREHOLDERS' ASSET (ADJ ) SHORTFALL TO MINIMUM CAPITAL REQUIREMENT (R'000)
46 Financial Condition Reporting for South African Short Term Insurers
Applicability of industry calibration
• We believe it should generally be applicable to typical insurers
• But with cell captives, does not adequately reflect:– Non-proportional reinsurance (and expenses sometimes included in
reinsurance)
– Lower risks due to structuring of business: e.g. recapitalisation built into contracts
• Very limited data for cell captives
• Industry calibration more appropriate to third party rather than first party cells
• Recommendation that cell captives submit capital requirements on the basis of a certified model
• Extensive consultation with cell captive market still required
47 Financial Condition Reporting for South African Short Term Insurers
Applicability of industry calibration
• Industry calibration should be applied with care for reinsurers:– Reinsurance business may be more risky / volatile than traditional
– Longer tail business due to reporting delays
– Format of data in STAR returns not appropriate
• Recommendation for reinsurers:– At least reserving calculation on certified model basis, given longer run-off
– Modify STAR returns
– Impractical to calibrate specifically for them, given small number in SA
• Niche insurers: may also not be appropriate depending on nature of business:– E.g. some have different run-off patterns (up to 15 years)
– Some have specific arrangements e.g. Government guarantee
• For companies in run-off, model may give artificially low result for capital – certified model should apply to capital calculation
48 Financial Condition Reporting for South African Short Term Insurers
What level of sufficiency to adopt?
• We believe 99.5% level too prudent at the outset – rather build up to it over time…
• Allows companies to build up capital, also using investment returns on increasing assets, and gives time to collect more data and test 99.5% level before implementing it finally
• Following tables show years of net profit vs capital required at industry level
• Imperfect measure, but perhaps gives some indication of when industry should move from 98% to 99% to 99.5%
• Also, bear in mind with certified models that companies with most significant shortfall will probably apply to reduce capital requirement
49 Financial Condition Reporting for South African Short Term Insurers
What level of sufficiency to adopt?
• At 98% level, number of years’ net profit required to build up to capital (e.g. for 55% of market by number of companies and 66% of market by net premium = 0 years):
Years of profit Frequency Percentage of Total Total Net Premium
Percentage of Total (Net Premium)
Average Net Premium
0 49 55.06% 19,706,834 66.43% 402,1801 5 60.67% 4,541,426 81.74% 908,2852 4 65.17% 1,850,284 87.97% 462,5713 5 70.79% 1,536,462 93.15% 307,2924 4 75.28% 334,404 94.28% 83,6015 2 77.53% 239,862 95.09% 119,9316 3 80.90% 373,910 96.35% 124,6377 3 84.27% 216,804 97.08% 72,2688 1 85.39% 185,312 97.70% 185,3129 1 86.52% 0 97.70% 0
10 1 87.64% 40,396 97.84% 40,39620 1 88.76% 7,476 97.87% 7,476
Above 4 93.26% 541,998 99.69% 135,500Losses 6 100.00% 91,177 100.00% 15,196Total 89 29,666,345 333,330
MCR Shortfall: 98% (measured in years of profit)
50 Financial Condition Reporting for South African Short Term Insurers
What level of sufficiency to adopt?
• After 4 years, 87% of market (by net premium) is at 99% level (if using only net profit)
Years of profit Frequency Percentage of Total Total Net Premium
Percentage of Total (Net Premium)
Average Net Premium
0 43 48.31% 18,125,783 61.10% 421,5301 3 51.69% 290,710 62.08% 96,9032 6 58.43% 5,099,355 79.27% 849,8933 2 60.67% 768,144 81.86% 384,0724 5 66.29% 1,551,247 87.09% 310,2495 5 71.91% 1,226,029 91.22% 245,2066 1 73.03% 43,919 91.37% 43,9197 2 75.28% 239,862 92.18% 119,9318 0 75.28% 0 92.18% 09 6 82.02% 683,189 94.48% 113,865
10 0 82.02% 0 94.48% 020 6 88.76% 1,004,932 97.87% 167,489
Above 4 93.26% 541,998 99.69% 135,500Losses 6 100.00% 91,177 100.00% 15,196Total 89 29,666,345 333,330
MCR Shortfall: 99% (measured in years of profit)
51 Financial Condition Reporting for South African Short Term Insurers
What level of sufficiency to adopt?
• After 6 years, 90% of market (by net premium) is at 99.5% level (if using only net profit)
Years of profit Frequency Percentage of Total Total Net Premium
Percentage of Total (Net Premium)
Average Net Premium
0 37 41.57% 14,775,521 49.81% 399,3381 6 48.31% 3,350,263 61.10% 558,3772 4 52.81% 2,189,979 68.48% 547,4953 5 58.43% 3,200,086 79.27% 640,0174 1 59.55% 0 79.27% 05 3 62.92% 1,029,259 82.74% 343,0866 4 67.42% 2,020,665 89.55% 505,1667 3 70.79% 485,593 91.19% 161,8648 2 73.03% 143,145 91.67% 71,5739 2 75.28% 140,636 92.14% 70,318
10 1 76.40% 9,903 92.18% 9,90320 9 86.52% 958,136 95.41% 106,460
Above 6 93.26% 1,271,983 99.69% 211,997Losses 6 100.00% 91,177 100.00% 15,196Total 89 29,666,345 333,330
MCR Shortfall: 99.5% (measured in years of profit)
52 Financial Condition Reporting for South African Short Term Insurers
Recommendations
53 Financial Condition Reporting for South African Short Term Insurers
Recommendations
• We recommend that:– Industry calibration should be done in accordance with the methodology and
assumptions outlined above
– STAR returns to be expanded to include more data on non-proportional reinsurance, reinsurers, cell captives and co-insurance
– Reinsurance data may be used to refine calibration of model in future
– No explicit allowance should be made for the underwriting cycle
– No explicit allowance should be set aside for operational risk
– Specific attention to be given to developing framework for certified model for cell captives (esp first party cells), reinsurers, some niche insurers, companies in run-off
– Further consultation required with these sectors
– Despite this, industry calibration should be used as benchmark for all sectors
– FSB should also establish framework for internal models
– Grossing-up factor on insurance capital charge to be limited to 50%, to avoid requirement being too onerous
54 Financial Condition Reporting for South African Short Term Insurers
Recommendations
• We recommend that:– Capital requirement implemented at 98% for 4 years, then 99% for two years
thereafter, then 99.5%
– Collected additional data to ensure that refinements can be made by the time 99.5% level reached
– Determine intervention points: we recommend a fairly low intervention / action point, say 1.1. times MCR, with more extensive interventions when falling below MCR
– Every company falling short of MCR should agree with the FSB:– Whether they will use certified model or internal model
– Whether they will apply for special dispensation even if using certified model or internal model
– How the company will reach capital required as agreed with FSB
– To make application of model easier for companies, use spreadsheet contained in STAR returns
– Our recommendations are first step: FSB now has to decide how to take it forward…
55 Financial Condition Reporting for South African Short Term Insurers
The way forward
56 Financial Condition Reporting for South African Short Term Insurers
The way forward
• Recalibration report will be published
• FSB working group will discuss its findings and other outstanding issues (e.g. internal models, reporting etc)
• Working group will discuss draft wording for changes to legislation to implement FCR
• The usual process to change legislation will be followed
• Implementation - not before 2007