Adequacy of capital

The estimation of the adequacy of capital from the point of view of the guarantee of activity of company is based beyond the comparison of the current and promising need of insurer at the point of capital for the sake of the real - in contrast the current - for the sake of the value of capital. The need at the point of capital is examined before the wide context, which considers the nomenclature of the proposed by company insurance products and services, the degree of the risks, connected for the sake of the insurance and investment activity of company, the prospect for its increase, the need for financial support of daughterly companies and payment of dividends, the volume of financial debts, the adequacy of reinsurance and general reserves, and also the presence of capital for neutralizing the action of unforeseen events. Available capital is evaluated on the basis of current indices taking into account the [vnosimykh] as needed correction fors such factors as the concealed cost of active memberships, quality/changeability of active memberships, the adequacy of total and reinsurance reserves, the assumed sources of the new enterings of capital, and also the degree of the aggressiveness/of the conservatism of the utilized rules of bookkeeping calculation.

In the course of evaluating the adequacy of capital also enters beside the calculation the degree of utilization as far as an insurance company or as far as a group of debt capital for financing its activity. Key indices in this case include financial, reserve and investment [leveredzh]. Financial [leveredzh] (or [leverazhnoe] relationship) it establishes, down what degree financing the activity of insurance company is achieved due to her own capital in contrast different debt tools. As a rule, in this case the following indices are examined:

• The ratio of debts to capital (in this case capital it is defined as the sum of debt and its own capital).
• Ratio of the cost of the privileged actions to capital.
• Ratio of the sum of debts and cost of the privileged actions to capital.
• Degree of covering of the fixed payments (taking into account dividends on the privileged actions or without the same, depending on circumstances).

The agency “Standard & Of poor's” often does not stop at the data analysis of insurance company, being turned down the examination of the consolidated indices of [leveredzha] of the group, to which it belongs, for purposes of obtaining a maximally complete general evaluation of the structure of capital and its influence beyond the financial state of insurer. The agency “Standard & Of poor's” also practices the analysis of the degree of covering of the fixed payments to company, since her force or weakness in this respect can considerably improve or worsen the estimation of the balance risks, connected for the sake of the financial [leveredzhem]. The privileged actions, the subordinated debt and other “hybrid” financial tools frequently possess unique properties and structure and can combine before themselves the characteristics of joint-stock and debt capital. The experts of the agency “Of standard & Of poor's” examine each such tool and its influence beyond the general consideration of company beyond the individual basis. The agency “Standard & Of poor's” also studies the periods of payments on the borrowed means and determines, they are balanced or they have predominantly long-term or short term tendency, which subjects company down relatively larger risk.

The index of reserve [leveredzha], defined as the ratio of total insurance reserves to personal capital of company, shows, how the profit of company is subjected down reduction as a result in the unforeseen exceeding of real payments from the reserve fund above the volume of the means, existing before this fund. The higher the value of this index, the more the financial position of company in the case of the unforeseen overexpenditure of means from the reserve fund or the appearance of the need for supplementing this fund can be weakened. Should be, however, interpreted the absolute values of the indices based on the defined as far as portion caution indicated, since they can be to a considerable extent subjected down such factors as the nomenclature of the proposed by company products and services or the utilized as far as it standards of financial account. Undergoes analysis the ratio of insurance reserves to the sum total of the insurance rewards obtained by company, since a change in this index can testify about decrease or increase in the degree of the conservatism of approach to the process of redundancy; based on the other side, these changes can become the result of displacing the accents before shaping of the nomenclature of insurance products and services and before the composition of the clientele of company, and also improvement or worsening in the general conditions of insurance activity.

The index of investment [leveredzha], defined as the ratio of the cost “real” active memberships (its own capital and basic means) to the value of its own capital, demonstrates the degree of the dependence of the financial position of insurance company beyond the possible instability of the indices of the cost of separate active memberships. The experts of the agency “Standard & Of poor's” also analyze the ratio of the investments of insurance company beside the daughterly and [affiliirovannye] companies to her capital, thus evaluating the degree of the influence of this “dual [leveredzha]” beyond the financial position of insurer.

Other questions, connected for the sake of “the quality” of capital, include, for example, the study of the degree, down which the insufficiently hard and fast rules of bookkeeping calculation lead down an artificial improvement in the financial position of insurance company (in particular, by means of overstating of the real cost of active memberships or aggressive estimation “of [gudvilla]” or postponed initial costs of active memberships); the degree of utilization of [perestrakhovaniya] for purposes of the maintenance of capital against the adequate level; and also “erosion” of capital as a result of the excessive use of privileged actions and other hybrid securities.

Finally, in the analysis run of the adequacy of capital the agency “Of standard & Of poor's” is turned down a question of the adequacy of the insurance and reinsurance reserves of the company:

Adequacy and the quality of total insurance reserves.
Being one of the most important components of the financial prosperity of insurance companies, which do not carry out life insurance, and reinsurance companies, this index with difficulty yields to objective evaluation. The agency “Of standard & Of poor's” tries in proportion to the possibility to obtain the maximum of information about the methodology and practice of redundancy, utilized as far as each concrete insurer, and also is examined the adequacy of available reserves before the context of the total volume of insurance payments and sum of insurance agreements in the year. In some countries the insurers support the significant “concealed” reserves in the limits of technical reserves; in proportion to possibility the agency “Of standard & Of poor's” is attempted to maximally accurately determine their size and to understand the methods of control besides them. Furthermore, the agency “Of standard & Of poor's”, possessing the significant volume of knowledge in this region, independently simulates the process of redundancy on the basis of several widely known methods, forming thus its own idea about the adequacy of reserves and their dependence beyond the number of introduced factors.

Reinsurance reserve.
The agency “Standard & Of poor's” also studies theoretical approaches and practical actions of insurance company before the region of [perestrakhovaniya]. Analysis includes the determination of the degree of the dependence of insurer beyond [perestrakhovaniya] (i.e., it will intend company independently to work with its clientele, or the large part of the risk about the concluded by it insurance agreements it will be transmitted to overcautious people), the study of the structural organization of the program of [perestrakhovaniya] (including the analysis of the risk of the losses as a result of the natural calamities, [perestrakhovaniya] of joint losses over the established sum, and also the order of the determination of the sum of probable maximum losses), order of selection and approval by the company of its overcautious people, common quality of the program of [perestrakhovaniya], and also order of the estimate of the cost of the sums, which the company can compensate about the agreements of [perestrakhovaniya].