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Q&A Bank 4.11

A

ActEdStudent

Member
In the solution it says the solvency margin is about three times the RMM. How do you know this from the information given in the question (or is it a more general comment about the RMM and capital)?

Also, how would a fall in the asset values of 20% lead to the company being insolvent?

Thanks.
 
Solvency margin is 50% of premiums, RMM (see formula in Chapter 6) is 16-18% of premiums. So roughly 3 times the minimum.

A-L is currently 50% of premium.
If assets drop by 20%, then A-L drops by 20% of A.
So solvency now 50% of premium minus 20% of A.
Given the OSCR of 200% in the question, A must be more than 200% of premium, so a 20% drop in A will be more than 40% of premium, making you insolvent.
 
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