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APRIL 2020 Q1ii)

S

Sam_actuary_123

Member
One of the disadvantages for allowing for ENIDs is that 'adding additional reserves increases costs for the insurance market'.

I thought this would be because there is additional capital strain to holding these reserves however one of the points in the report is:
'unlikely to cause capital strain since probability weighted'.

So how would adding these additional reserves add costs for the insurance market?

Thanks
 
Hi Sam

Yes, additional capital strain, and also potentially higher premiums. So your understanding is correct.

The point that the report is trying to make is that ENID allowances can sometimes be criticised as ineffective, as the events are such low probability that any loading is unlikely to be sufficient if such an event actually happened.

Ian
 
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