In the first paragraph, "two elements of the solvency capital required" - what are the two elements? I thought solvency capital was just excess of regulatory assets over liabilities? Also, in the diagram, why does the solvency capital line cross the provisions on a prudent basis in the third block? I thought the solvency capital requirement in the third block should be the additional capital requirement?
Both the paragraph and the diagram are trying to illustrate the same idea. If you need to hold a certain amount of capital for regulatory purposes this can be thought of as your best estimate liabilities (B) plus some additional capital requirement (A) or equivalently a prudent estimate of your liabilities (P where P>B) and a smaller additional capital requirement (a where a<A). In each case B+A and P+a equate to the same total amount.
