Hi, I'm confused on what ICA is for. There's already MCR that gives the formulae to calculate the min capital required, so what is ICA supposed to do? Is it not a compulsory reporting requirement but only when FSA request for it? How do we calculate ICA and how is it linked to MCR? Thanks, Grace
Hi Grace, It's recognised that the MCR is not really adequate as a measure of how much capital an insurer needs to hold eg it's not really risk-based, it's retrospective, it's the same formula for everyone, it generally gives quite a low figure etc etc. So ICA (and ICG) was introduced as an interim measure (until SII is up and running). This is the amount an insurer thinks it needs to hold, given its risks, assets and liabilities. For this reason, this is the amount that the FSA would expect an insurer to hold (at the very least), even though the MCR is the figure that is reported in the annual returns. The ICA is calculated separately to the MCR and usually involves very complex models of the whole business (and lots of actuarial expertise). Guidance is given in INSPRU 7 on factors to consider when modelling ICA and the FSA will review the firm's own assessment, but it is up to the insurer to actually do the modelling. I hope that clarifies things a bit. Coralie
