What is meant by the "INITIAL capital requirement" in the context of the core reading from chapter 11 below. Does this mean the SCR? Core reading: "For example, this could involve selecting a driver (eg reserves or sum at risk) which has an approximately linear relationship with the required capital or its components. The initial capital requirement can be expressed as a percentage of that driver, and the projected capital is then approximated as the same percentage of the projected values of the driver.
Hi The initial capital requirement in the above is referring to the SCR at time zero. However, to work out the Risk Margin we need to project the SCR during each year of run-off of existing business. ie we need to work out initial and subsequent capital requirements. We would then multiply by a cost of capital rate to determine the Risk Margin. Hope this helps. Thanks