Capital management

Capital management is at the center of any insurance business, with the optimal amount of capital required involving the understanding of an important trade-off:

• Not enough capital, and the company is at risk of becoming insolvent as the result of either consistently poor results or due to “bad luck” (eg share market losses or very large claims)
• Too much capital, and the insurer’s profit margins will suffer, not rewarding shareholders appropriately for the risk taken

Modeling techniques such as Dynamic Financial Analysis can be effectively applied to quantify and understand this risk/return relationship for the following tasks:

• Determining optimal capital requirements
• Allocation of capital between classes of business
• Formulating investment and asset allocation strategies
• Evaluating alternative reinsurance programmes

Our consultants have experience in both the building of Dynamic Financial Analysis models, as well as the completion of the assignments described above.