I
indexo
Member
Hi,
I am actually a bit confused how capital requirements are related to ruin probabilities.
Often we hear that capital requirement is calculated based on ruin probabilities.
Do I interpret this as: if ruin probability is 5%, there must be sufficient capital to cover the 5% ruin?
Or do I interpret as: there is 5% that the company will go insolvent?
Thanks,
I am actually a bit confused how capital requirements are related to ruin probabilities.
Often we hear that capital requirement is calculated based on ruin probabilities.
Do I interpret this as: if ruin probability is 5%, there must be sufficient capital to cover the 5% ruin?
Or do I interpret as: there is 5% that the company will go insolvent?
Thanks,