In the solution it says the solvency margin is about three times the RMM. How do you know this from the information given in the question (or is it a more general comment about the RMM and capital)? Also, how would a fall in the asset values of 20% lead to the company being insolvent? Thanks.
Solvency margin is 50% of premiums, RMM (see formula in Chapter 6) is 16-18% of premiums. So roughly 3 times the minimum. A-L is currently 50% of premium. If assets drop by 20%, then A-L drops by 20% of A. So solvency now 50% of premium minus 20% of A. Given the OSCR of 200% in the question, A must be more than 200% of premium, so a 20% drop in A will be more than 40% of premium, making you insolvent.
