In fact, there is a law in our country:
The solvency management regulations of insurance companies defines solvency here: solvency is the ability of insurance companies to repay debts.
Simply put, solvency is the ability of insurance companies to fulfill their insurance contract responsibilities. It can also be simply understood that solvency is indeed a manifestation of the ability of insurance companies to claim compensation. The higher the solvency, the smaller the risk that the insurance company will not be able to pay. To some extent, the solvency is definitely high, but not necessarily the higher the better.
Solvency adequacy ratio = actual capital-minimum capital requirement
The minimum capital requirement refers to the minimum amount of capital that an insurance company must hold according to the requirements of the local insurance regulatory agency in order to avoid the insurance company getting into operational difficulties.
Give a simple example:
In order to prevent an insurance company from getting into operational difficulties, the regulatory authorities require that the insurance company must hold a capital of 654.38 billion yuan (calculated according to the evaluation formula formulated by local insurance regulatory authorities). In fact, the capital held by insurance companies is 6 billion yuan, far exceeding the 6,543.80 billion yuan required by local insurance regulatory authorities, and 6 billion yuan ÷ 6,543.80 billion yuan =600%, that is, the solvency adequacy ratio of insurance companies is 600%.
In the current solvency management regulations, there are the following three measures:
1. Core solvency adequacy ratio: the ratio of core capital to minimum capital, which measures the adequacy of high-quality capital of insurance companies;
2. Comprehensive solvency adequacy ratio: the ratio of actual capital to minimum capital, which measures the overall capital adequacy ratio of insurance companies;
3. Comprehensive risk rating: assess the comprehensive solvency risk of insurance companies and measure the overall solvency risk of insurance companies.
Companies that meet the following three regulatory requirements at the same time are solvency companies:
1. The core solvency adequacy ratio is not less than 50%;
2. The comprehensive solvency adequacy ratio is not less than100%;
3. The comprehensive risk rating is above Grade B..
From the perspective of consumers and insurance regulatory authorities, the higher the solvency adequacy ratio, the better, because the higher the adequacy ratio, the higher the repayment capital used by insurance companies to absorb residual risks, and the less likely the insurance companies are insolvent. So, does it mean that the solvency adequacy ratio of 600% will not lose money?
Of course not.
Because insurance companies are probabilistic transactions, everything can only be calculated according to empirical assumptions. In the event of a large-scale natural and man-made disaster, the real risk rate is 6 times higher than expected, and 600% solvency adequacy ratio may not be paid.