Hello I understand an increase in value of equities held by company will result in increase in cap required for equity risk within SCR but according to me, decrease in value of equities should also result in increase in capital required for equity risk as risk increases. am I right? thanks in advance
Hi Yogesh It will depend on the type of company and the products they write: If a company uses an internal model, they may decide to change the equity shock stress event or the equity volatility assumption; impacting capital required. If there are policyholder options inherent in the product, the equity fall could adversely impact the take-up rates; potentially leading to an increase in required capital. However, if there were no such options and the company used the standard formula (and invested in equities) then the fall in market value of equities has reduced the exposure to equities in absolute terms; resulting in a fall in the required capital. Does this help? Thanks Em
