Hello, I want to clarify the point below as a reason for projecting solvency position- Estimate pattern of capital releases and assess whether company is achieving a suitable return on capital What does this mean? How is it practically calculated? Thank you!
Project forward the insurer's balance sheet, look at its solvency position at each projection point of interest, and assess how much (if any) capital can be released at each point.
When capital is locked into the company backing solvency capital requirements, it may be invested in relatively safe assets and therefore not be earning as much for the shareholders as they might like. Therefore it is useful to understand how long it is locked in for.
The projection would show when capital could be released. But the co might prefer to retain that capital in order to use it to generate higher returns for shareholders by developing the business in some way (eg launching a new product line). If returned to s/hs, could be via a higher dividend or share buyback, say.
