Insights into Risk Management in the Insurance Industry

  1. Liquidity /Funding Risk :
  1. Selection
  2. Limitation and
  3. Diversification
  • Policyholders and shareholders understanding and expectation of acceptable risks and the appropriate management of those risks
  • Expected outcomes and returns for policyholders, shareholders, and clients
  • The required capital to support risk-taking activities
  • The culture of the organization, its staff, and management capabilities
  • The insurance company’s long-term strategic priorities
  1. Earning — Statutory Earnings have been taken as a measure
  2. Value — Market Consistent Embedded Value
  3. Solvency:- Statutory Solvency Position
  4. Liquidity:- Excess Liquidity
  1. 25% crash in the equity indices in 1 in 20 and 40% crash in equity indices in 1 in 200 scenario
  2. Interest rates up or down by 300 bps. in 1 in 20 and 500 bps.in 1 in 200 scenario
  3. Increase in credit spreads by 75 bps in 1 in 20 and 150 bps in 1in 200 scenario
  4. Credit defaults at 1% and 2% respectively
  5. Inflation of 60+bps
  6. Deflation represents a decrease in the general price level of goods and services and occurs when the inflation rate falls below 0%. When inflation reduces the value of money over time, deflation increases the real value of money. However, deflation increases the real value of debt and may aggravate recessions and lead to a deflationary spiral. Hard and soft deflation scenario is also tested with a hard and soft crash
  7. Further, the impact of high-level changes in mortality risk factors are also measured — increase or improvement in mortality, increase or decrease in lapsation, increase in expense, etc.,

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