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Chapter 19 page 3

C

CAKABOGU23

Very Active Member
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?:confused:
 
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.
 
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