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What is meant by the INITIAL capital requirement

Discussion in 'SA2' started by curiousactuary, May 6, 2020.

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  1. curiousactuary

    curiousactuary Member

    What is meant by the "INITIAL capital requirement" in the context of the core reading from chapter 11 below. Does this mean the SCR?

    Core reading: "For example, this could involve selecting a driver (eg reserves or sum at risk) which has an
    approximately linear relationship with the required capital or its components. The initial
    capital requirement     can be expressed as a percentage of that driver, and the projected
    capital is then approximated as the same percentage of the projected values of the driver.
     
    curiousactuary, May 6, 2020
    #1
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Hi
    The initial capital requirement in the above is referring to the SCR at time zero. However, to work out the Risk Margin we need to project the SCR during each year of run-off of existing business. ie we need to work out initial and subsequent capital requirements. We would then multiply by a cost of capital rate to determine the Risk Margin.
    Hope this helps.
    Thanks
     
    Em Francis, May 7, 2020
    #2

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