Q&A Bank Q4.18

Hi,

In Q&A Bank Q4.18 a liability insurer has a 50% solvency margin and o/s claim reserves are 200% premium income. The answer says that this means that the solvency margin is about 3 times the RMM.

My calculation is:

RMM=16%WP times 1.5 (liability insurer)
=24% WP

Free assets= 50%WP
Hence solvency margin is about twice the RMM

Solution also says that a 20% drop in asset values would make the company insolvent.
If liabilities are O/S + UPR= 2WP+0.5WP=2.5WP

Free assets=Assets-2.5WP=0.5WP i.e. assets= 3WP

For insolvency we need
free assets<RMM=24%WP

i.e. a 10% drop in asset values

Thanks!