Capital management, solvency and financial reporting for general insurers
This domain tests solvency capital, own funds, technical provisions and the reporting chain. You must distinguish best-estimate liabilities, risk margin, SCR, MCR and available capital, and explain how management actions affect coverage.
Core rules
- Technical provisions: best-estimate liabilities plus risk margin. The risk margin compensates for non-hedgeable risk and is often approximated as a cost-of-capital charge on run-off SCR.
- Capital requirements: MCR is a lower floor; SCR is calibrated to a 1-in-200 adverse outcome over one year. The SCR can come from the standard formula or an internal model.
- Own funds: classified into tiers; deductions and eligibility limits matter.
- Reporting and governance: ORSA, SFCR and RSR, plus board sign-off and regulatory approval for model changes.
Worked example
Best-estimate liabilities are £900m. Run-off SCR is estimated at £150m, £140m, £130m and £120m over four years. At a 6% cost of capital, the undiscounted risk margin is 6% × £540m = £32.4m; discounting at 2% gives roughly £31.4m. Technical provisions are therefore about £931m. If own funds are £180m and the SCR is £150m, SCR coverage is 120%; MCR coverage is £180m/£60m = 300%.
Traps that cost marks
Double-counting the risk margin; including inadmissible intangibles in own funds; treating the MCR as a target rather than a floor; and ignoring contract boundaries or the matching adjustment eligibility rules.
Exam tip
Show the bridge: best estimate → risk margin → technical provisions → own funds → SCR/MCR ratios.