developing insurance markets - world bank

Developing Insurance Markets

Use of Financial Health and Stability Indicators

in Insurance Supervision

March 2020

Michael Hafeman

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Insurance is an important part of the financial sector. It supports broader economic and general

well‐being in developed economies in a way that is so entrenched and accepted that it is not

widely recognized. In less developed markets, insurance can remain nascent for many years and

then pick up through a dynamic development phase and reach a more mature phase. As would

be expected, many actors contribute to this development. This report is part of a larger effort

to understand the key drivers of development in insurance sectors in a range of jurisdictions

especially including the role of policy and project interventions.

This report contributes to two of the identified imperatives for development in particular.

Development has been found to be supported by more effective policy leadership, which needs

adequate and effective metrics, and by a better implemented risk‐based rather than rules‐

based approach to supervision.

The report preparation was led by Michael Hafeman, a consultant working jointly with the

Finance, Competitiveness, and Innovation (FCI) Global Practice at the World Bank and the

Monetary and Capital Markets Department at the International Monetary Fund. The author is

grateful for the active engagement of all who were involved in the discussions and in support of

the work.

The author is grateful for guidance and comments throughout the process from Jennifer Elliott

and Peter Windsor of the IMF and Fiona Stewart, Craig Thorburn, and Tetsutaro Shindo of the

World Bank. Ultimately, of course, the resulting report remains the work of the author and

does not reflect all the views of reviewers.

This material has been funded in part by the UK aid from the UK government, however the

views expressed do not necessarily reflect the UK government’s official policies. The report has

been prepared as part of a broader program of the Centre for Global Disaster Protection. For

more information on the ongoing work that is part of this project, readers may contact Craig

Thorburn at [email protected] .

Table of Contents

A. BACKGROUND ........................................................................................................................................... 1

B. SUMMARY OF KEY FINDINGS ..................................................................................................................... 4

C. ANALYSIS OF SURVEY RESULTS ................................................................................................................... 7

INSTITUTIONAL INFORMATION .......................................................................................................................................... 7 USE AND COMMUNICATION OF FHSIS .............................................................................................................................. 11 LOOKING TO THE FUTURE ............................................................................................................................................... 19 INPUT ON SPECIFIC FHSIS BY TOPIC ................................................................................................................................. 22

ANNEX 1 RESPONDENTS BY JURISDICTION ................................................................................................... 33

ANNEX 2 DETAILED RESULTS BY QUESTION .................................................................................................. 34

1. CAPITAL ............................................................................................................................................................. 44 2. ASSETS .............................................................................................................................................................. 49 3. REINSURANCE ..................................................................................................................................................... 57 4. ACTUARIAL ......................................................................................................................................................... 61 5. MANAGEMENT ................................................................................................................................................... 66 6. EARNINGS .......................................................................................................................................................... 71 7. LIQUIDITY ........................................................................................................................................................... 78 8. SUBSIDIARIES ...................................................................................................................................................... 82 9. INDUSTRY‐WIDE .................................................................................................................................................. 86

ANNEX 3 DETAILED RESULTS BY TOPIC ......................................................................................................... 90

A. USE OF FHSIS ..................................................................................................................................................... 90 B. USEFULNESS OF FHSIS ......................................................................................................................................... 93 C. GUIDANCE ON FHSIS ........................................................................................................................................... 96 D. MAPPING OF FHSIS ............................................................................................................................................. 99 E. USE OF BENCHMARKS ........................................................................................................................................ 102 F. BENCHMARKS USED ........................................................................................................................................... 105

ANNEX 4 MAPPING OF FHSIS ..................................................................................................................... 113

ANNEX 5 GUIDANCE ON FHSIS ................................................................................................................... 118

DETAILED TABLE OF CONTENTS ..................................................................................................................................... 118 1. CAPITAL ........................................................................................................................................................... 121 2. ASSETS ............................................................................................................................................................ 128 3. REINSURANCE ................................................................................................................................................... 138 4. ACTUARIAL ....................................................................................................................................................... 141 5. MANAGEMENT ................................................................................................................................................. 149 6. EARNINGS ........................................................................................................................................................ 157 7. LIQUIDITY AND ALM .......................................................................................................................................... 169 8. SUBSIDIARIES AND RELATED PARTIES ..................................................................................................................... 175 9. INDUSTRY‐WIDE ................................................................................................................................................ 180

Glossary

CU Used to describe generic “Currency Units” FHSI Financial Health and Stability Indicator FSAP Financial Sector Assessment Program IAIS International Association of Insurance Supervisors ICPs Insurance Core Principles IFRS International Financial Reporting Standards IMF International Monetary Fund RBC Risk‐Based Capital TA Technical Assistance WBG World Bank Group

A. Background

Off‐site monitoring is an essential tool of financial sector supervision. For example, as

highlighted by Standard 9.7 of the Insurance Core Principles (ICPs) of the International

Association of Insurance Supervisors (IAIS), “The supervisor monitors and supervises insurers on

an on‐going basis, based on regular communication with the insurer, information obtained

through supervisory reporting and analysis of market and other relevant information.”

Off‐site monitoring involves both qualitative and quantitative analyses, including the calculation

of ratios and other financial health and stability indicators (FHSIs)1. Analysis of quantitative

indicators can play an important role in many aspects of supervision, including:

Market analysis for policy development;

Macroprudential risk assessment;

Microprudential risk assessment; and

Market conduct supervision.

Unfortunately, not all supervisors are using such analyses as fully and effectively as they might.

The reasons for this vary among jurisdictions, but often include one or more of the following:

Use of a less‐than‐ideal set of indicators, for example, with gaps or multiple

indicators that give the same information;

Lack of guidance on the interpretation of the indicators, including the

development and application of benchmarks;

Infrequent and inconsistent calculation of the indicators;

Gaps in the data needed to calculate some indicators; and

Insufficient capabilities among supervisory staff.

The International Monetary Fund (IMF) and World Bank Group (WBG) have collaborated on a

project to help remedy this situation. Many of their technical assistance (TA) projects over the

years have provided training and other assistance to help supervisors deal with these problems.

In the course of this work, informal tools and resources related to FHSIs have been developed.

The current project has drawn on this work. It seeks to enhance the resources through wider

input, and to make them widely available to supervisors through this report and related

documents. The project was carried out by a consultant, Michael Hafeman, in collaboration

1 The FHSIs discussed in this report include the six insurance‐related Financial Soundness Indicators (FSIs) used by the IMF in its monitoring of the soundness of the system‐wide financial sector, from a macroprudential vantage point. See 2019 Financial Soundness Indicators Compilation Guide, IMF, 2019. https://www.imf.org/en/Data/Statistics/fsi‐guide

with the IMF and WBG and the assistance of the IAIS. The main steps of the project are outlined

below.

Preparing to seek input. Draft guidance was prepared on the interpretation of many FHSIs used

by insurance supervisors2. The FHSIs have been organized by the CARAMELS3 categories to

which they are primarily related. A separate document was prepared that mapped the FHSIs to

other risk‐assessment categories where they can be useful in informing the assessment4. A

survey questionnaire was developed, to seek input on issues such as:

The purposes for which FHSIs are being used;

Which FHSIs are currently being used;

Whether any changes to the FHSIs are being contemplated, for example, in

response to the implementation of IFRS 9 and IFRS 17;

The mapping of FHSIs to risk‐assessment categories;

Supervisory benchmarks for the FHSIs and how they were established;

How some common data and methodology issues are being dealt with; and

Suggestions for improvements to the draft interpretation guidance.

Obtaining input from insurance supervisors and others. The IAIS graciously agreed to assist in

facilitating input from the supervisory community. It sent the survey questionnaire and the

draft interpretation guidance and mapping to its members, along with a request for input. The

IMF provided an overview of the project to the IAIS Implementation and Assessment

Committee and requested its members to provide input on behalf of their own authorities, via

both the survey and the Supervisory Forum, and to encourage others to do so. The IAIS

Secretariat set up the questionnaire on its survey platform and compiled the responses. The

IMF and WBG distributed the materials to staff and external technical assistance experts and

requested their input.

Analyzing the input and preparing a paper and updated resources. The consultant analyzed

the results of the survey and prepared this paper, which reports on the results of the survey

and briefly discusses the use of FHSIs. The paper also includes resource materials, which were

updated to reflect the input obtained. They include a mapping of the FHSIs to risk assessment

categories, supervisory benchmarks (ranges being used by supervisors, not prescriptions), and

interpretation guidance. IMF and WBG staff served as peer reviewers.

2 See Interpretation of FHSIs‐2019 02 26. Earlier versions of the draft benefitted from reviews by Michael Grist (WBG, retired) and supervisors in the Eastern Caribbean (in connection with a Caribbean Regional Technical Assistance Center (CARTAC) project). 3 CARAMELS is a risk‐assessment framework used by many insurance supervisors, with the following categories: Capital; Assets; Reinsurance; Actuarial Provisions; Management; Earnings; Liquidity; and Subsidiaries (including related parties and groups). 4 See Mapping of FHSIs‐2019 02 24.

Publishing the paper and making the resources available. The paper is being published as a

working paper by both the IMF and WBG. The paper and related resources are accessible on

both organizations’ websites.

This paper has a few main sections and several detailed annexes. Section B presents a

summary of key findings, including recommendations. Section C provides an analysis of the

survey results. It begins with a breakdown of the institutional information on the survey

respondents. This is followed by analysis of how respondents are using FHSIs and how they are

communicating with various stakeholders regarding FHSIs. Then it looks to the future, including

the progress of respondents in adapting their use of FHSIs to new financial reporting standards

and their needs for additional guidance and other resources to facilitate the use of FHSIs.

Section C concludes with an analysis of the input of respondents regarding specific FHSIs, which

has been organized by topic (rather than by CARAMELS category).

Annex 1 lists the IAIS members who responded to the survey, including breakdowns by nature

of the jurisdiction (FSB members, other OECD jurisdictions, or other) and geographic region.

Annex 2 provides the detailed results of the survey, by question. Hence, it is organized by

CARAMELS category. Annex 3 provides the same detailed results but has been organized by

topic for ease of reference. It also includes rankings of some responses not only within

CARAMELS categories but also across all FHSIs.

Annex 4 is a mapping of the FHSIs to CARAMELS and other risk assessment categories. It is an

updated version of the draft mapping provided with the survey questionnaire, which takes

account of the input provided by respondents.

Annex 5 provides guidance on the calculation and interpretation of each of the FHSIs. It reflects

input provided by respondents and includes guidance on three additional FHSIs. The guidance is

organized by CARAMELS category and Annex 5 begins with a detailed table of contents.

B. Summary of Key Findings

IAIS members from 33 jurisdictions responded to the survey. The respondents were well‐

distributed by nature of the jurisdiction and IAIS region, except that there were no responses

from the Middle East and North Africa region. More than 80 percent of the respondents were

from high or upper middle income countries.

Respondents use FHSIs most regularly and consistently in the supervision of conventional

insurance, particularly with respect to prudential supervision. There is scope for many

authorities to make more use of FHSIs across the full range of insurance activities they

supervise and in the various aspects of supervision for which they are responsible.

Respondents typically indicated that instructions for calculating FHSIs have been documented.

However, written guidance and training on the use and interpretation of FHSIs – both in general

and in relation to specific FHSIs – is lacking at many authorities.

Overall, the extent to which respondents communicate with insurers and the general public

regarding FHSIs is limited. This includes communication regarding how FHSIs are being used,

which FHSIs are being used, and the results of calculations – both for individual insurers and

industry aggregates.

Most respondents use between 25 and 74 FHSIs in total, although several use 100 or more.

Most respondents are still early in the process of revising the FHSIs to take account of

anticipated changes in financial reporting and regulatory requirements related to IFRS 9

Financial Instruments and IFRS 17 Insurance Contracts.

The survey asked several questions regarding each of nearly 100 FHSIs. Their responses indicate

that

Supervisors are using a wide variety of FHSIs, although some are used much more

frequently than others.

The FHSIs most used by supervisors, and those considered most useful, were identified.

Many respondents identified FHSIs that were surveyed that they thought would be

useful, but which they were not currently using.

The draft guidance seems largely to have achieved a good balance between being

concise but still sufficiently clear and detailed. The guidance was revised to reflect the

input provided.

Respondents were largely satisfied with the proposed mappings of the FHSIs to risk‐

assessment categories, but some additions were made in response to suggestions.

Supervisors would be very interested in a database of benchmarks or more guidance on

the development of benchmarks. Unfortunately, very few authorities provided

quantitative responses regarding their current benchmarks for most of the FHSIs.

It is recommended that supervisors consider taking the following actions, if they are not already

doing so:

Use FHSIs to inform their analyses across the full range of insurance activities they

supervise and in the various aspects of supervision for which they are responsible.

Implement robust tools to facilitate the use of FHSIs, including databases, calculation

and reporting systems, and written guidance and training on the use and interpretation

of FHSIs – both in general and in relation to specific FHSIs.

Communicate with both insurers and the general public regarding how FHSIs are used as

part of supervisory assessments.

Communicate with both insurers and the general public, with appropriate levels of

granularity and transparency, regarding the results for specific insurers and peer groups.

Use a sufficient number of FHSIs in each risk‐assessment category to adequately inform

the risk assessments, considering the results of this survey regarding the usefulness of

specific FHSIs.

Revise the FHSIs, where necessary, to take account of anticipated changes in financial

reporting and regulatory requirements related to IFRS 9 and IFRS 17.

Box 1 provides examples of specific steps that might be taken by supervisors in response to

these recommendations.

It is recommended that the IMF and WBG consider taking the following actions, to build on the

results of this project and help to enhance the use of FHSIs by supervisors:

Develop training programs and resources, such as regional seminars and interactive

webinars, on the use of FHSIs. This might be done in collaboration with other

organizations.

Develop and maintain a database of FHSIs being used and benchmarks established by

supervisors, starting from the information in this report. Encourage more supervisors to

provide input, particularly regarding the benchmarks.

Develop an Excel workbook to facilitate the calculation and comparison of FHSIs and

make it widely available to supervisors. Such a tool would probably be especially useful

to supervisors in developing and emerging markets.

Box 1. Examples of Specific Steps that Might be Taken

Recommendation Examples of Specific Steps

Use FHSIs to inform their analyses across the full range of insurance activities they supervise and in the various aspects of supervision for which they are responsible.

Use FHSIs in analyzing non‐conventional insurance activities, such as microinsurance and takaful.

Use FHSIs beyond prudential supervision, such as in market conduct supervision and market development.

Implement robust tools to facilitate the use of FHSIs, including databases, calculation and reporting systems, and written guidance and training on the use and interpretation of FHSIs – both in general and in relation to specific FHSIs.

Develop reporting systems that facilitate comparisons across peer groups.

Map all of the FHSIs being used to each of the relevant categories in the risk‐assessment framework.

Communicate with both insurers and the general public regarding how FHSIs are used as part of supervisory assessments.

Include on the supervisor’s website an explanation of its supervisory methodology, including how FHSIs are used, along with some examples.

Communicate with both insurers and the general public, with appropriate levels of granularity and transparency, regarding the results for specific insurers and peer groups.

Communicate to each insurer the results of key FHSIs and how such results compare with those of their peers.

Use a sufficient number of FHSIs in each risk‐assessment category to adequately inform the risk assessments, considering the results of this survey regarding the usefulness of specific FHSIs.

Select at least three FHSIs for use in each risk‐assessment category, including the 27 FHSIs considered most useful by respondents (or arithmetic transformations of them).

Revise the FHSIs, where necessary, to take account of anticipated changes in financial reporting and regulatory requirements related to IFRS 9 and IFRS 17.

Revise the FHSIs and benchmarks in response to changes in capital adequacy requirements.

C. Analysis of Survey Results

This section provides a brief overview of the findings for each of the first 14 survey questions

separately. The findings for the remaining questions, which deal with various topics in relation

to each FHSI, are presented by topic.

The complete set of questions and corresponding data are included in Annex 2, while the

compilation of the same results by topic are included in Annex 3. Many of the tables in Annexes

2 and 3 include an index, the weights for which are shown at the top of the table; in some

cases, the index values are shown in the charts in this section. The index values can be used to

rank the items in the table, which helps in reaching conclusions. The tables in Annex 3 show

rankings both within the respective CARAMELS categories and overall.

Institutional Information

Authorities from thirty‐three jurisdictions responded to the survey. The respondents were well‐

distributed by nature of the jurisdiction and IAIS region, except that there were no responses

from the Middle East and North Africa region. Most respondents were from high (19) or upper

middle income (8) countries, although several were from low (1) or lower middle income (5)

countries. Annex 1 provides a list of the jurisdictions from which responses were received.

7

7

202

8

4

3

Respondents by IAIS Region

Asia and Oceania

Central, Eastern Europe andTranscaucasia

Latin America

Middle East and North Africa

North America

Offshore and CaribbeanIslands

Sub‐Sahara Africa

Western Europe

Question 1. What is the institutional nature of YOUR AUTHORITY?

The institutional nature of most of the respondents (19 out of the 33) is an autonomous public

authority, with most of the others being departments in central banks or monetary authorities

Question 2. Which financial sectors are supervised by YOUR AUTHORITY? (More than one

response may be entered, where applicable.)

Very few respondents (4 out of the 33) supervise only the insurance sector. Most also supervise

other sectors, with a fairly even distribution among pensions, banking, securities and other. On

average, the respondents supervise three sectors. The average is significantly lower for the

jurisdictions that are members of the Financial Stability Board (FSB) than for the other

jurisdictions. It is lowest for jurisdictions in the North America and Asia and Oceana regions, and

highest for jurisdictions in Latin America5.

5 See Annex 2, table 2.1 for details.

10

4

19

Q1. Institutional nature of respondents

1. Department within centralbank or monetary authority

2. Department withingovernment ministry (forexample, Ministry of Finance)

3. Autonomous publicauthority

Question 3. What types of insurance activities are supervised by YOUR AUTHORITY? (More

than one response may be entered, where applicable.)

All respondents supervise conventional insurance activities. Less than one‐half of the

respondents supervise microinsurance or offshore insurance activities, while very few supervise

takaful or microtakaful.

33

1820

17 18

0

5

10

15

20

25

30

35

1. Insurance 2. Pensions 3. Banking 4. Securities 5. Other

Q2. Financial sectors supervised by respondents

1

0

0

0

1

1

1

0

4

2

2

0

0

0

0

0

1

5

3

0

0

0

1

2

1

0

7

1

5

0

0

0

5

2

1

14

0

0

2

0

0

0

0

1

3

0% 20% 40% 60% 80% 100%

Asia and Oceania

Central, Eastern Europe and Transcaucasia

Latin America

Middle East and North Africa

North America

Offshore and Caribbean Islands

Sub‐Sahara Africa

Western Europe

Total number of respondents

Number of sectors supervised by respondents

1 Sector 2 Sectors 3 Sectors 4 Sectors 5 Sectors

Question 4. In which aspects of regulation or supervision are YOUR AUTHORITY involved?

(More than one response may be entered, where applicable.)

Respondents are typically involved in several aspects of regulation or supervision. Most

respondents are involved in micro‐prudential, macro‐prudential, market conduct, and financial

integrity regulation or supervision. About one‐half of the respondents have responsibilities for

market development, but very few are involved in competition policy.

33

14

4

3

13

0 5 10 15 20 25 30 35

1. Conventional insurance

2. Microinsurance

3. Takaful

4. Microtakaful

5. Offshore insurance

Q3. Insurance activities supervised by respondents

0 5 10 15 20 25 30 35

1. Micro‐prudential

2. Macro‐prudential

3. Market conduct

4. Financial integrity (for example, anti‐money laundering)

5. Competition policy

6. Market development

Q4. Aspects of involvement by respondents

Use and Communication of FHSIs

Question 5. To what extent does YOUR AUTHORITY use FHSIs in supervising each of the

following types of insurance activities?

Respondents use FHSIs most regularly and consistently in the supervision of conventional

insurance, with an index of 9.5 out of 106. Among those who supervise other insurance

activities, FHSIs are used fairly regularly in the supervision of microinsurance and microtakaful,

but less so for offshore insurance or takaful. There is scope for many authorities to make more

use of FHSIs across the full range of insurance activities they supervise.

Question 6. To what extent does YOUR AUTHORITY use FHSIs in each of the following aspects

of regulation or supervision?

Respondents use FHSIs most regularly and consistently in micro‐prudential supervision, with an

index of 9.4 out of 10, followed by macro‐prudential supervision. Among those responsible for

other aspects of regulation or supervision, FHSIs are used most regularly in the supervision of

financial integrity and least in regulation of competition. There is scope for many authorities to

6 The index for this question was calculated by applying weights of 10, 7, 4, and 1 to responses 1 through 4, respectively. For this question, and all others where a “not applicable” response was available, “not applicable” responses were omitted from the calculation of the index.

9.5

7.4

5.8 7.0 6.6

0%10%20%30%40%50%60%70%80%90%100%

Q5. Use of FHSIs by insurance activity supervised

4. Seldom if ever used

3. Used sometimes

2. Used often but notalways consistently

1. Used regularly andconsistently

Index

make more use of FHSIs in relation to all aspects of aspects of regulation and supervision for

which they are responsible, especially those other than prudential supervision.

Question 7. To what extent does YOUR AUTHORITY have the following tools and guidance to

support the use of FHSIs?

Most respondents have tools to support their use of FHSIs, including databases, calculation

tools, and reporting systems7. However, in many cases these tools do not extend to the full

range of FHSIs being used by the authorities. The tools more frequently facilitate analysis of

trends in the FHSIs of each insurer than the comparison of FHSIs for peer groups.

Instructions for calculating FHSIs are typically documented, but written guidance and training

on the use and interpretation of FHSIs – both in general and in relation to specific FHSIs – is

lacking at many authorities.

7 For full text of the items on the horizontal axis please refer to the tables for the respective questions in Annex 2.

a. A structured database of the data needed to calculate FHSIs

b. A supervisory reporting system that automatically calculates FHSIs for each insurer

c. Standardized spreadsheets that are used to calculate FHSIs

d. Instructions for calculating FHSIs, including the data and methodology

e. A supervisory reporting system or standardized spreadsheets that facilitate the analysis

of trends in the FHSIs for each insurer

f. A supervisory reporting system or standardized spreadsheets that facilitate the

comparison of FHSIs for peer groups of insurers

g. Supervisory benchmarks for specific FHSIs

h. Written guidance on the interpretation of specific FHSIs

i. Written guidance on the use of FHSIs, in general

j. Training on the interpretation of specific FHSIs

k. Training on the use of FHSIs, in general

Question 8. To what extent does YOUR AUTHORITY communicate with insurers regarding your

use of FHSIs?

Overall, the extent to which respondents communicate with insurers regarding FHSIs is limited,

with an average index of 3.0. Where information is communicated, it most commonly includes

a general explanation of how the authority uses FHSIs and the results of some FHSIs for the

specific insurer. However, on each of the aspects regarding the use of FHSIs queried, at least

some respondents do communicate extensively with insurers. This suggests that many

authorities could go further in communicating how FHSIs are used as part of their supervisory

assessments, the results for a specific insurer, and how such results compare with those of its

peers.

6.7

5.5

6.2 6.2

7.1

5.7

5.0 4.9 4.9 4.6 4.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

a. b. c. d. e. f. g. h. i. j. k.

Q7. Availability of tools and guidance

4. Not available

3. Available for few if any FHSIs

2. Available for many FHSIs

1. Available for all or most FHSIs,where relevant

Index

Question 9. To what extent does YOUR AUTHORITY communicate with the general public

regarding your use of FHSIs?

As might be expected, the extent to which respondents communicate with the general public

regarding FHSIs is even more limited than their communication with insurers, with an average

index of 1.8. Where information is communicated, it most commonly includes a general

explanation of how the authority uses FHSIs, descriptions of some FHSIs, and the aggregate

results of some FHSIs for peer groups of insurers or the industry. However, on each of the

aspects regarding the use of FHSIs queried, at least some respondents do communicate

extensively with the general public. This suggests that most authorities could go further in

communicating how FHSIs are used as part of their supervisory assessments and the results for

specific insurers and peer groups.

Question 10. Which of the following categories are included in the risk‐assessment framework

used by YOUR AUTHORITY?

Almost all respondents (32 of 33) reported having a risk‐assessment framework with various

categories within which risks are assessed. The categories most commonly used are those that

are typically part of the CARAMELS framework, with the exception of the Subsidiaries category.

However, many respondents also indicate that they are using categories that are typically part

of risk‐based supervision frameworks, such as Insurance, Credit, and Market risks. This suggests

that some authorities might be applying more than one framework simultaneously (examples

of which have been seen in some TA projects) or that they might have responded affirmatively

to more categories than actually exist in their assessment frameworks (on the basis that the

other categories are “similar”). “Other” categories used by some authorities include Anti‐

Money Laundering and Combatting the Financing of Terrorism Risk, Outsourcing Risk,

Enforcement Issues, Contagion Risk, Emerging Risks, Policies and Procedures, and Shariah Non‐

compliance Risk.

Question 11. In total, how many FHSIs does YOUR AUTHORITY use? (When responding, count

each FHSI only once, even if some FHSIs relate to more than one risk‐assessment category.)

Most respondents use between 25 and 74 FHSIs in total, although several use 100 or more. The

overall average is roughly 50, with the Western Europe and North America regions having

significantly higher averages.

Question 12. How many FHSIs does YOUR AUTHORITY use when assessing each of the

categories in your risk‐assessment framework? (When responding, count all FHSIs mapped to

the risk‐assessment category, even if they have also been mapped other categories.)

The average number of FHSIs used by respondents when assessing the various risk‐assessment

categories varies significantly by category, around an overall average of 4.6 per category.

Unsurprisingly, the categories where the greatest numbers of FHSIs are being used are financial

in nature (Earnings, Capital, and Assets), together with Insurance Risk. Although relatively few

FHSIs are being used in assessing the more governance‐related categories, the average for

almost every category is at least two FHSIs.

0

2

4

6

8

10

12

14

16

100 or more 75 to 99 50 to 74 25 to 49 15 to 24 10 to 14 9 or fewer

Q11. Total number of FHSIs used by respondents

Number of respondents

33.6 45.7

35.0

‐

72.5

41.9 53.8

93.3

48.5

‐ 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

0%10%20%30%40%50%60%70%80%90%100%

Distribution of total number of FHSIs used

9 or fewer

10 to 14

15 to 24

25 to 49

50 to 74

75 to 99

100 or more

Average

Looking to the Future

Question 13. To what extent has YOUR AUTHORITY progressed in revising the FHSIs it uses to

take account of anticipated changes in financial reporting and regulatory requirements related to

IFRS 9 and IFRS 17?

The implementation of two key International Financial Reporting Standards (IFRSs), IFRS 9

Financial Instruments and IFRS 17 Insurance Contracts, in many jurisdictions is widely expected

to result in the need to make changes in financial reporting and regulatory requirements, such

as capital adequacy requirements. Most respondents are still early in the process of revising the

FHSIs to take account of anticipated changes in financial reporting and regulatory requirements

related to IFRS 9 and IFRS 17. Nearly one‐half have yet to consider the need for revisions to

FHSIs and most of those who have considered the need for revisions have yet to make them.

The responses do not vary significantly by risk‐assessment category.

Question 14. In addition to the resources and tools currently available (for example, the Core

Curriculum modules), to what extent would the following initiatives that might be considered by

the IMF, the WBG, or others be useful to YOUR AUTHORITY in enhancing your use of FHSIs?

Overall, respondents indicated that each of the suggested initiatives would be useful in

enhancing the use of FHSIs. The four initiatives ranked most highly (items b, c, d, and e), along

with item a, are being dealt with by this project. Also ranked highly were several training‐

related items (items j and k), a database of FHSIs being used and benchmarks established by

supervisors, and an Excel workbook to facilitate the calculation and comparison of FHSIs.

Input on Specific FHSIs by Topic

A. Does YOUR AUTHORITY use the following FHSIs?8

(1) Yes, as described

(2) An arithmetic transformation is used

(3) No

The survey questionnaire asked about 95 FHSIs. The responses indicate that a wide variety of

FHSIs are being used by supervisors. In aggregate, for the 95 FHSIs queried, only 37 percent of

the responses indicated that FHSIs as described were being used, with another 5 percent

indicating that arithmetic transformations were being used. This leaves 58 percent of the

responses indicating that the FHSIs were not being used. In fact, several of the FHSIs are being

used by few, if any, of the respondents.

The table below lists the 27 FHSIs queried that are most frequently used by respondents. It

includes those FHSIs whose indices9 ranked either in the top two within the respective

CARAMELS category or in the top 20 overall.

8 Survey questions 15, 21, 27, 33, 39, 45, 51, 57, and 63. 9 The index for this question was calculated by applying weights of 10, 8, and 0 to responses 1 through 3, respectively.

FHSIs Most Frequently Used by Respondents Index

1.06 : Cover of solvency margin 8.7

1.07 : Risk‐based capital adequacy ratios 6.5

1.08 : Growth in capital 8.6

2.02 : Real estate / total assets 5.8

2.17 : Investments: distribution by type 7.4

3.01 : Risk retention ratio 9.1

3.03 : Maximum exposure to single risk / capital 3.1

4.04 : Claims development 6.2

4.05 : Underwritten business: distribution by class of business 7.9

5.03 : Operating expenses / gross written premium 7.8

5.05 : Growth in gross written premium 9.0

5.06 : Growth in net written premium 8.4

5.07 : Growth in total assets 8.4

6.01 : Claims ratio 9.5

6.02 : Gross claims ratio 7.7

6.03 : Expense ratio 9.2

6.04 : Combined ratio [FSI Non‐Life] 9.2

6.05 : Investment income ratio 6.8

6.07 : Profitability ratio 6.7

6.12 : Return on equity (ROE) [FSI] 8.7

6.14 : Return on assets (ROA) [FSI Life] 6.8

7.01 : Liquid assets / current liabilities 6.2

7.03 : Liquid assets / total assets 7.0

8.02 : Related party receivables / total assets 3.9

8.04 : (Investments in related parties + related party receivables) / total assets 3.4

9.03 : Penetration 7.5

9.04 : Density 6.0

B. What are the views of YOUR AUTHORITY about the usefulness of the following FHSIs (or

arithmetic transformations of them)?10

(1) We use it, and find it useful

(2) We use it, but do not find it very useful

(3) We do not use it, because we use other FHSIs that provide similar information

(4) We do not use it, but it seems like it might be useful

(5) We do not use it, and it does not seem like it would be very useful

The responses regarding the usefulness of the FHSIs queried were considerably more positive,

with an average index of 7.1, than those regarding use, where the average index was only 4.1.

10 Survey questions 16, 22, 28, 34, 40, 46, 52, 58, and 64.

40 percent of the responses indicated that the FHSIs being used were useful, with only 1

percent indicating that they were not useful. Another 5 percent indicated that the FHSIs were

not being used because other FHSIs that provide similar information are being used instead. 41

percent of the responses indicated that, although they were not using the specific FHSIs, the

FHSIs seemed like they might be useful, with only 14 percent of the responses indicating that

they did not seem like they would be very useful. This suggests that many supervisors could

benefit from using additional FHSIs.

The table below lists the 27 FHSIs considered most useful by respondents. It includes those

FHSIs whose indices11 ranked either in the top two within the respective CARAMELS category or

in the top 20 overall.

FHSIs Considered Most Useful by Respondents Index

1.03 : Capital / total assets 8.6




2.11 : Equities / total assets 8.2



3.02 : (Reinsurance recoveries + reinsurance commissions) / reinsurance ceded 7.6


4.04 : Claims development 8.9

4.05 : Underwritten business: distribution by class of business 9.3

5.05 : Growth in gross written premium 9.3

5.06 : Growth in net written premium 8.6

5.07 : Growth in total assets 9.0

6.01 : Claims ratio 9.4

6.02 : Gross claims ratio 9.0



6.07 : Profitability ratio 8.3

6.12 : Return on equity (ROE) [FSI] 9.5

6.14 : Return on assets (ROA) [FSI Life] 8.5




8.04 : (Investments in related parties + related party receivables) / total assets 6.9


9.04 : Density 7.4

11 The index for this question was calculated by applying weights of 10, 2, 5, 7, and 0 to responses 1 through 5, respectively.

C. What are the views of YOUR AUTHORITY about the draft guidance that has been prepared

for the following FHSIs?12

(1) The guidance is sufficiently clear and detailed

(2) The guidance is unclear

(3) More detail on calculating the FHSI would be useful

(4) More guidance on interpreting the results would be useful

The draft guidance seems largely to have achieved a good balance between being concise but

still sufficiently clear and detailed, with response 1 accounting for 86 percent of the responses

and response 2 for only 1 percent. However, respondents were able to enter more than one

response; some did so, for example, combining response 1 with response 3 or 4. Response 3

accounted for 6 percent of the responses and response 4 for 8 percent. A few respondents

offered explicit suggestions for improving the guidance, which were particularly appreciated.

The responses to this question have been carefully considered in the preparation of the

guidance included in Annex 5.

D. What are the views of YOUR AUTHORITY about the draft mapping to risk‐assessment

categories that has been prepared for the following FHSIs?13

(1) The mapping seems appropriate

(2) The mapping includes categories for which this FHSI is not relevant

(3) The mapping omits some categories for which this FHSI is relevant

Respondents were largely satisfied with the draft guidance mappings of the FHSIs to risk‐

assessment categories, with response 1 accounting for 96 percent of the responses.

Respondents were able to enter more than one response, and some did so. Response 2

accounted for only 1 percent of the responses and response 3 for 4 percent. The responses to

this question have been carefully considered in the preparation of the mapping included in

Annex 5. Although none of the mappings in the draft guidance were deleted, most of the

additions suggested by respondents have been included. Also, the comments inspired further

consideration of the mappings, which resulted in some additions that were not explicitly

suggested by respondents.

12 Survey questions 17, 23, 29, 35, 41, 47, 53, 59, and 65. 13 Survey questions 18, 24, 30, 36, 42, 48, 54, 60, and 66.

E. Which the following best describes the use of supervisory benchmarks by YOUR AUTHORITY

for the following FHSIs (or arithmetic transformations of them)?14

(1) Benchmarks have been established, which reflect requirements of legislation

(2) Benchmarks have been established, which are largely based on experience in YOUR

JURISDICTION

(3) Benchmarks have been established, which are largely based on those used by other

supervisors

(4) No benchmarks are used, but it seems like they might be useful

(5) No benchmarks are used, and it does not seem like they would be very useful

(6) Not applicable, because YOUR AUTHORITY does not use this FHSI

In TA projects, supervisors often express interest in having benchmarks against which to assess

the FHSIs of their insurers. However, as noted by some respondents, many FHSIs do not lend

themselves to fixed, internationally applicable benchmarks. In some cases, benchmarks are

appropriate, but will need to vary to reflect factors such as conditions in the local insurance

market or the economy. In some other cases, FHSIs are used primarily to help achieve a better

understanding of an insurer’s business and how it is changing over time, so it might be

inappropriate to establish benchmarks for “good” or “bad” levels of an FHSI.

The chart below shows the distribution of responses, from those authorities using the queried

FHSIs, regarding their use of benchmarks and the sources of the benchmarks that are being

used. The questions also sought views on the potential usefulness of benchmarks for those

FHSIs for which benchmarks are not currently being used. The results confirm the above

observation regarding the level of interest in having benchmarks, with only 14 percent of the

responses relating to cases where benchmarks would not be considered useful. However, only

35 percent of the responses indicated cases where benchmarks are currently in place. The

results suggest that supervisors would be very interested in a database of benchmarks or more

guidance on the development of benchmarks, which is consistent with the response to item g

of question 14.

14 Survey questions 19, 25, 31, 37, 43, 49, 55, 61, and 67.

The table below lists the 32 FHSIs for which benchmarks might be most useful. It includes those

FHSIs whose indices15 ranked either in the top two within the respective CARAMELS category or

in the top 20 overall.

15 The index for this question was calculated by applying weights of 10, 10, 7, 5, and 0 to responses 1 through 5, respectively. Those who responded 6 were omitted from the calculation.

FHSIs for Which Benchmarks Might Be Most Useful Index

1.01 : Gross written premium / capital 7.0

1.02 : Net written premium / capital 7.4

1.03 : Capital / total assets 7.1

1.04 : Capital / invested assets [FSI] 7.1




1.10 : Statutory deposit / required deposit 8.2

2.01 : (Real estate + unquoted equities + receivables) / total assets 7.3

2.04 : (Real estate + mortgages) / total assets 7.1

2.05 : Maximum deposits in a single bank / total assets 7.2

2.08 : Receivables / capital 7.2

2.10 : Receivables over 90 days / total receivables 7.6

2.13 : Maximum investment in a single counterparty / total assets 7.1

2.14 : Maximum receivable from a single counterparty / total assets 7.3




3.05 : Maximum premium ceded to a single reinsurer / gross written premium 6.3

4.01 : Net claims provisions / average of net claims paid in last three years 5.9

4.08 : Actuarial assumption: short‐term interest rate 5.9

4.09 : Actuarial assumption: long‐term interest rate 6.3

5.03 : Operating expenses / gross written premium 7.0

5.12 : Board composition 7.2






8.03 : Due to related parties / total assets 5.3


9.06 : Concentration ratio 5.2

F. If YOUR AUTHORITY has established benchmarks for the following FHSIs, what benchmarks

are used for conventional insurance activities?16

1. Minimum for non‐life insurance

2. Maximum for non‐life insurance

3. Minimum for life insurance

4. Maximum for life insurance

Authorities were asked to provide the benchmarks being used for the FHSIs for which they had

established benchmarks. Unfortunately, very few authorities provided quantitative responses

for most of the FHSIs. For 41 of the 95 FHSIs queried, none of the respondents provided

benchmarks. Among the FHSIs that attracted few or no quantitative responses would be those

that do not lend themselves to the use of benchmarks. However, this still leaves considerable

scope for gathering more data on the benchmarks being used by supervisors.17

The table below lists the 18 FHSIs for which at least 4 authorities provided quantitative

responses.

16 Survey questions 20, 26, 32, 38, 44, 50, 56, 62, and 68. 17 The survey questionnaire allowed free‐form entry of responses regarding the benchmarks used. Perhaps, a more structured format, such as the entry of specific percentages or selection from ranges of percentages, would elicit more quantitative data.

FHSIs for Which at Least 4 Authorities Provided Benchmarks

1.02 : Net written premium / capital

1.06 : Cover of solvency margin

1.07 : Risk‐based capital adequacy ratios

1.08 : Growth in capital

2.02 : Real estate / total assets

2.11 : Equities / total assets

2.13 : Maximum investment in a single counterparty / total assets

3.01 : Risk retention ratio

5.03 : Operating expenses / gross written premium

5.05 : Growth in gross written premium

5.06 : Growth in net written premium

5.12 : Board composition

6.01 : Claims ratio

6.03 : Expense ratio

6.04 : Combined ratio [FSI Non‐Life]

6.12 : Return on equity (ROE) [FSI]

6.14 : Return on assets (ROA) [FSI Life]

7.01 : Liquid assets / current liabilities

G. If YOUR AUTHORITY uses FHSIs other than those listed anywhere in the draft guidance,

please provide the following information for each of them, to the extent it is available.18

a. Short name of the FHSI

b. Guidance on calculating the FHSI

c. Guidance on interpreting the results

d. Risk‐assessment categories to which this FHSI relates (refer to the draft mapping, as well

as any other categories in the risk‐assessment framework of YOUR AUTHORITY)

e. Comments on the use of benchmarks for this FHSI (use, usefulness, and basis)

f. Benchmarks used, if any (minimums and maximums for non‐life and life insurance)

Thirteen authorities responded to the request for information about the use of FHSIs other

than those included in the survey questionnaire. Several provided general comments and

approximately 30 additional FHSIs were mentioned. Also, one of the authorities provided

information about extensive guidance on the use of FHSIs available on its website.19

18 Survey questions 69 and thereafter. 19 The National Association of Insurance Commissioners (NAIC) in the United States has many publications freely available on its website; see https://www.naic.org/prod_serv_publications.htm They include the Financial Analysis Handbook, which contains many FHSIs, and the Insurance Regulatory Information Systems (IRIS) Ratios Manual, which focuses on FHSIs that are used for financial condition screening purposes. Each of these publications includes both guidance and benchmarks.

Some of the FHSIs mentioned by respondents were the same as those queried but employed

different terminology. Some of the others would facilitate more detailed analyses by focusing

on the composition of various elements of financial results, such as the composition of available

or required capital, or particular types of expenses or claims. Still others were suggestions of

information that could be analyzed, but were not themselves FHSIs, such as exceedance

probability curves.

The responses were greatly appreciated, and the information provided has been used in various

ways, as summarized in the following table. This includes the addition of three new FHSIs to the

guidance: capital in excess of minimum required / average annual loss (“burn rate”), highest

quality liquid assets / claims, and inclusion.

FHSI Categories Disposition

Composition of available capital by tier

Capital Discussed in guidance for FHSIs 1.06 and 1.07

Retained earnings or accumulated losses / paid‐up capital


Impact of long‐term guarantee measures20

Capital Jurisdiction‐specific

Composition of required capital by risk category


Capital in excess of minimum required / average annual loss

Capital, Legal and Regulatory New FHSI 1.11

Structured finance investments / total investments

Assets Discussed in guidance for FHSIs 2.01 and 2.17

Assets with counterparty risk / total assets

Assets Discussed in guidance for FHSIs 2.13, 2,14 and 2.17

Debt securities / total assets Assets Discussed in guidance for FHSIs 2.13, 2,14 and 2.17

Growth in claims paid Actuarial Discussed in guidance for FHSI 4.01

Growth in technical provisions Actuarial, Management, Insurance, Legal and Regulatory, Operational, Conduct, Strategic

Discussed in guidance for FHSIs 4.02 and 5.07

Surrender values / technical provisions [for relevant life classes of business]

Actuarial Discussed in guidance for FHSI 4.02

20 The long‐term guarantees measures were introduced in the Solvency II Directive to ensure an appropriate treatment of insurance products that include long‐term guarantees. The long‐term guarantees measures are the following: the extrapolation of risk‐free interest rates; the matching adjustment; the volatility adjustment; the extension recovery period in case of non‐compliance with the Solvency Capital Requirement; the transitional measure on the risk‐free interest rates; the transitional measure on technical provisions.

FHSI Categories Disposition

Technical provisions for unit‐linked business / assets backing unit‐linked business

Actuarial Discussed in guidance for FHSI 4.02

Non‐guaranteed distributions to policyholders / distributions to policyholders illustrated at time of sale

Management, Insurance, Legal and Regulatory, Conduct, Reputation, Strategic

Discussed in guidance for FHSI 5.10

Growth in market share Management, Insurance, Legal and Regulatory, Operational, Conduct, Strategic

Discussed in guidance for FHSIs 5.05, 5.06, and 5.07

Catastrophe claims / total claims Earnings, Actuarial, Insurance Discussed in guidance for FHSIs 6.01 and 6.02

Catastrophe claims / catastrophe premiums [average over a period of years]

Earnings, Actuarial, Insurance Discussed in guidance for FHSIs 6.01 and 6.02

Surrenders / total claims Earnings, Actuarial, Insurance Discussed in guidance for FHSIs 6.01 and 6.02

Commission expense ratio Earnings, Insurance, Operational, Conduct


Investment income / profits Earnings Discussed in guidance for FHSIs 6.06 and 6.07

Composition of profits by component [underwriting, investment income, unrealized capital gains]

Earnings Discussed in guidance for FHSIs 6.06 and 6.07

Premium persistency Earnings, Liquidity, Insurance, Conduct


Highest quality liquid assets / claims Liquidity, Insurance New FHSI 7.07

(Investments in related parties + related party receivables) / capital

Subsidiaries, Capital, Assets, Liquidity, Credit, Reputation, Concentration

Discussed in guidance for FHSIs 8.01, 8.02, 8.03, and 8.04

Inclusion [number of people with at least one insurance policy / population]

Management, Reputation, Environmental, Strategic

New FHSI 9.07

Annex 1 Respondents by Jurisdiction

Nature of Jurisdiction Income Level21 IAIS Region

IAIS Member

FSB

Other OEC

D

Other

Low In

come

Lower M

iddle

Income

Upper M

iddle

Income

High In

come

Asia an

d Ocean

ia

Central, Eastern

European

d

Latin America

Middle East an

d

NorthAfrica

North America

Offshore and

CaribbeanIslands

Sub‐Sah

ara Africa

Western Europe

Albania x x x

Austria x x x

Bahamas x x x

Belgium x x x

Belize x x x

Bermuda x x x

British Virgin Islands x x x

Canada ‐ OSFI x x x

Cayman Islands, BWI x x x

China, Hong Kong x x x

Chinese Taipei x x x

Colombia x x x

Croatia (Republic of ) x x x

Gibraltar x x x

Hungary x x x

India x x x

Lithuania x x x

Malaysia x x x

Maldives (Republic of ) x x x

Namibia x x x

Nigeria x x x

Pakistan x x x

Philippines x x x

Portugal x x x

Rwanda x x x

Slovakia x x x

Slovenia x x x

South Africa x x x

Turkey x x x

Turks & Caicos BWI x x x

Uruguay x x x

USA, NAIC x x x

Vanuatu x x x

Jurisdictions of respondents by category 6 6 21 1 5 8 19 7 7 2 0 2 8 4 3

Total number of respondents 33

21 World Bank classification

Annex 2 Detailed Results by Question

0. Distribution of respondents by nature of jurisdiction and IAIS region

FSB jurisdictions

Other OECD jurisdictions

Other jurisdictions

Total

Asia and Oceania 2 0 5 7

Central, Eastern Europe and Transcaucasia 1 3 3 7

Latin America 0 0 2 2

Middle East and North Africa 0 0 0 0

North America 2 0 0 2

Offshore and Caribbean Islands 0 0 8 8

Sub‐Sahara Africa 1 0 3 4

Western Europe 0 3 0 3

Total number of respondents 6 6 21 33

1. What is the institutional nature of YOUR AUTHORITY?

(1) Department within central bank or monetary authority (2) Department within government ministry (for example, Ministry of Finance) (3) Autonomous public authority (for example, Financial Services Authority)

(1) (2) (3) Total

Results by Nature of Jurisdiction

FSB jurisdictions 1 1 4 6

Other OECD jurisdictions 3 0 3 6

Other jurisdictions 6 3 12 21


Results by IAIS Region

Asia and Oceania 2 2 3 7

Central, Eastern Europe and Transcaucasia 3 1 3 7

Latin America 1 0 1 2

Middle East and North Africa 0 0 0 0

North America 0 0 2 2

Offshore and Caribbean Islands 1 1 6 8

Sub‐Sahara Africa 2 0 2 4

Western Europe 1 0 2 3


2. Which financial sectors are supervised by YOUR AUTHORITY? (More than one response may be entered, where applicable.)

(1) Insurance (2) Pensions (3) Banking (4) Securities (5) Other

(1) (2) (3) (4) (5) Total


FSB jurisdictions 6 3 2 0 1 6

Other OECD jurisdictions 6 5 4 4 2 6

Other jurisdictions 21 10 14 13 15 21

Total number of respondents 33 18 20 17 18 33


Asia and Oceania 7 2 3 2 4 7

Central, Eastern Europe and Transcaucasia 7 7 3 5 2 7

Latin America 2 2 2 2 2 2

Middle East and North Africa 0 0 0 0 0 0

North America 2 1 1 0 0 2

Offshore and Caribbean Islands 8 2 7 5 5 8

Sub‐Sahara Africa 4 2 2 1 3 4

Western Europe 3 2 2 2 2 3


2.1 Number of financial sectors supervised.

1 2 3 4 5 Total Average number supervised


FSB jurisdictions 2 2 2 0 0 6 2.00

Other OECD jurisdictions 0 2 0 3 1 6 3.50

Other jurisdictions 2 1 5 11 2 21 3.48

Total number of respondents 4 5 7 14 3 33 3.21


Asia and Oceania 1 2 3 1 0 7 2.57

Central, Eastern Europe and Transcaucasia 0 2 0 5 0 7 3.43

Latin America 0 0 0 0 2 2 5.00

Middle East and North Africa 0 0 0 0 0 0 ‐

North America 1 0 1 0 0 2 2.00

Offshore and Caribbean Islands 1 0 2 5 0 8 3.38

Sub‐Sahara Africa 1 0 1 2 0 4 3.00

Western Europe 0 1 0 1 1 3 3.67

Total number of respondents 4 5 7 14 3 33 3.21

3. What types of insurance activities are supervised by YOUR AUTHORITY? (More than one response may be entered, where applicable.)

(1) Conventional insurance (2) Microinsurance (3) Takaful (4) Microtakaful (5) Offshore insurance

(1) (2) (3) (4) (5) Total


FSB jurisdictions 6 2 0 0 1 6

Other OECD jurisdictions 6 1 0 0 1 6

Other jurisdictions 21 11 4 3 11 21



Asia and Oceania 7 6 3 3 3 7

Central, Eastern Europe and Transcaucasia 7 0 0 0 0 7

Latin America 2 1 0 0 1 2

Middle East and North Africa 0 0 0 0 0 0

North America 2 0 0 0 0 2

Offshore and Caribbean Islands 8 2 0 0 7 8

Sub‐Sahara Africa 4 4 1 0 1 4

Western Europe 3 1 0 0 1 3


4. In which aspects of regulation or supervision are YOUR AUTHORITY involved? (More than one response may be entered, where applicable.)

(1) Micro‐prudential (2) Macro‐prudential (3) Market conduct (4) Financial integrity (for example, anti‐money laundering) (5) Competition policy (6) Market development

(1) (2) (3) (4) (5) (6) Total


FSB jurisdictions 5 5 4 4 0 3 6

Other OECD jurisdictions 6 6 5 6 0 1 6

Other jurisdictions 20 20 18 20 5 13 21

Total number of respondents 31 31 27 30 5 17 33


Asia and Oceania 6 6 6 7 1 6 7

Central, Eastern Europe and Transcaucasia 6 7 7 7 1 2 7

Latin America 2 2 2 2 0 1 2

Middle East and North Africa 0 0 0 0 0 0 0

North America 2 1 1 0 0 0 2

Offshore and Caribbean Islands 8 8 6 7 1 4 8

Sub‐Sahara Africa 4 4 3 4 2 3 4

Western Europe 3 3 2 3 0 1 3

Total number of respondents 31 31 27 30 5 17 33

5. To what extent does YOUR AUTHORITY use FHSIs in supervising each of the following types of insurance activities?

(1) Used regularly and consistently (2) Used often but not always consistently (3) Used sometimes (4) Seldom if ever used (5) Not applicable, because YOUR AUTHORITY has no responsibility for this type of insurance activity

Weights for index: 10 7 4 1 omit

(1) (2) (3) (4) (5) Total Index Rank

a. Conventional insurance 28 5 0 0 0 33 9.5 1

b. Microinsurance 9 1 1 3 19 33 7.4 2

c. Takaful 2 1 0 2 28 33 5.8 5

d. Microtakaful 2 0 0 1 30 33 7.0 3

e. Offshore insurance 6 4 2 3 18 33 6.6 4

Total and Average Index 47 11 3 9 95 8.1

6. To what extent does YOUR AUTHORITY use FHSIs in each of the following aspects of regulation or supervision?

(1) Used regularly and consistently (2) Used often but not always consistently (3) Used sometimes (4) Seldom if ever used (5) Not applicable, because YOUR AUTHORITY has no responsibility for this aspect of regulation or

supervision

Weights for index: 10 7 4 1 omit

(1) (2) (3) (4) (5) Total Index Rank

a. Micro‐prudential 28 3 0 1 1 33 9.4 1

b. Macro‐prudential 22 7 2 2 0 33 8.5 2

c. Market conduct 15 6 5 4 3 33 7.2 4

d. Financial integrity 19 7 1 4 2 33 8.0 3

e. Competition policy 2 1 2 4 24 33 4.3 6

f. Market development 9 5 5 3 11 33 6.7 5


7. To what extent does YOUR AUTHORITY have the following tools and guidance to support the use of FHSIs?

(1) Available for all or most FHSIs, where relevant (2) Available for many FHSIs (3) Available for few if any FHSIs (4) Not available

Weights for index: 10 7 2 0

(1) (2) (3) (4) Total Index Rank

a. A structured database of the data needed to calculate FHSIs 12 14 2 5 33 6.7 2

b. A supervisory reporting system that automatically calculates FHSIs for each insurer

9 12 4 8 33 5.5 6

c. Standardized spreadsheets that are used to calculate FHSIs 10 14 3 6 33 6.2 3

d. Instructions for calculating FHSIs, including the data and methodology

11 12 5 5 33 6.2 3

e. A supervisory reporting system or standardized spreadsheets that facilitate the analysis of trends in the FHSIs for each insurer

12 16 1 4 33 7.1 1

f. A supervisory reporting system or standardized spreadsheets that facilitate the comparison of FHSIs for peer groups of insurers

8 14 5 6 33 5.7 5

g. Supervisory benchmarks for specific FHSIs 8 9 11 5 33 5.0 7

h. Written guidance on the interpretation of specific FHSIs 6 13 6 8 33 4.9 8

i. Written guidance on the use of FHSIs, in general 7 11 7 8 33 4.9 8

j. Training on the interpretation of specific FHSIs 5 12 9 7 33 4.6 10

k. Training on the use of FHSIs, in general 6 10 9 8 33 4.5 11

Total and Average Index 94 137 62 70 5.6

8. To what extent does YOUR AUTHORITY communicate with insurers regarding your use of FHSIs?

(1) Communicated for all or most FHSIs, where relevant (2) Communicated for many FHSIs (3) Communicated for a few FHSIs (4) Not communicated



a. General explanation of how FHSIs are used 5 9 6 13 33 3.8 1

b. Descriptions of the FHSIs used 4 6 7 16 33 2.9 3

c. Supervisory benchmarks for specific FHSIs 2 5 8 18 33 2.2 5

d. Results of calculations of specific FHSIs for the insurer 3 9 13 8 33 3.6 2

e. Aggregate results of calculations of specific FHSIs for peer groups of insurers or the industry

3 7 4 19 33 2.6 4


9. To what extent does YOUR AUTHORITY communicate with the general public regarding your use of FHSIs?

(1) Communicated for all or most FHSIs, where relevant (2) Communicated for many FHSIs (3) Communicated for a few FHSIs (4) Not communicated



a. General explanation of how FHSIs are used 4 5 4 20 33 2.5 1

b. Descriptions of the FHSIs used 4 4 5 20 33 2.4 2

c. Supervisory benchmarks for specific FHSIs 2 3 5 23 33 1.5 4

d. Results of calculations of specific FHSIs for specific insurers, with the insurers identified

1 3 4 25 33 1.2 5

e. Results of calculations of specific FHSIs for specific insurers, but with the insurers not identified

0 2 5 26 33 0.7 6

f. Aggregate results of calculations of specific FHSIs for peer groups of insurers or the industry

2 6 9 16 33 2.4 2


10. Which of the following categories are included in the risk‐assessment framework used by YOUR AUTHORITY?

(1) Included in the framework (2) A similar category is included (explain) (3) Not included (4) Not applicable, because YOUR AUTHORITY has no risk‐assessment framework

Weights for index: 10 7 0 omit


a. Capital 28 4 0 1 33 9.6 2

b. Assets 27 5 0 1 33 9.5 3

c. Reinsurance 26 4 2 1 33 9.0 7

d. Actuarial 28 2 2 1 33 9.2 4

e. Management 26 4 2 1 33 9.0 7

f. Earnings 31 1 0 1 33 9.9 1

g. Liquidity 28 2 2 1 33 9.2 4

h. Subsidiaries (or Group or Related Parties) 19 5 7 2 33 7.3 15

i. Insurance 27 3 2 1 33 9.1 6

j. Credit 26 3 3 1 33 8.8 9

k. Market 26 2 4 1 33 8.6 11

l. Operational 24 4 4 1 33 8.4 12

m. Legal and Regulatory 25 3 3 2 33 8.7 10

n. Conduct 15 6 9 3 33 6.4 17

o. Reputation 17 5 8 3 33 6.8 16

p. Concentration 22 4 4 3 33 8.3 13

q. Environmental (sectoral and macro risks) 14 6 9 4 33 6.3 18

r. Strategic 21 2 7 3 33 7.5 14

s. Other categories (explain) 6 1 13 13 33 3.4 19


11. In total, how many FHSIs does YOUR AUTHORITY use? (When responding, count each FHSI only once, even if some FHSIs relate to more than one risk‐assessment category.)

(1) 100 or more (2) 75 to 99 (3) 50 to 74 (4) 25 to 49 (5) 15 to 24 (6) 10 to 14 (7) 9 or fewer

Weights for index:22 110 85 60 35 20 12 5

(1) (2) (3) (4) (5) (6) (7) Total Index Rank


FSB jurisdictions 1 0 2 2 1 0 0 6 53.3 2

Other OECD jurisdictions 3 0 1 2 0 0 0 6 76.7 1

Other jurisdictions 0 1 5 10 4 0 1 21 39.0 3

Total number of respondents 4 1 8 14 5 0 1 33 48.5


Asia and Oceania 0 0 2 2 2 0 1 7 33.6 7

Central, Eastern Europe and Transcaucasia

1 0 0 6 0 0 0 7 45.7 4

Latin America 0 0 0 2 0 0 0 2 35.0 6

Middle East and North Africa 0 0 0 0 0 0 0 0 N/A N/A

North America 1 0 0 1 0 0 0 2 72.5 2

Offshore and Caribbean Islands 0 1 2 2 3 0 0 8 41.9 5

Sub‐Sahara Africa 0 0 3 1 0 0 0 4 53.8 3

Western Europe 2 0 1 0 0 0 0 3 93.3 1

Total number of respondents 4 1 8 14 5 0 1 33 48.5

22 The weights are not necessarily the midpoints of the respective ranges. An assumption was made that the average within a range might be lower than the midpoint.

12. How many FHSIs does YOUR AUTHORITY use when assessing each of the categories in your risk‐assessment framework? (When responding, count all FHSIs mapped to the risk‐assessment category, even if they have also been mapped other categories.)

(1) 10 or more FHSIs (2) 5 to 9 FHSIs (3) 1 to 4 FHSIs (4) No FHSIs are used when assessing this category (5) Not applicable, because this category is not used

Weights for index:23 12 7 3 0 omit

(1) (2) (3) (4) (5) Total Index Rank

a. Capital 7 13 13 0 0 33 6.5 3

b. Assets 7 13 13 0 0 33 6.5 3

c. Reinsurance 1 8 22 0 2 33 4.3 9

d. Actuarial 6 8 17 1 1 33 5.6 5

e. Management 5 9 11 7 1 33 4.9 6

f. Earnings 13 14 4 2 0 33 8.1 1

g. Liquidity 1 6 23 1 2 33 4.0 12

h. Subsidiaries (or Group or Related Parties)

2 1 14 9 7 33 2.8 15

i. Insurance 13 4 13 1 2 33 7.2 2

j. Credit 3 10 14 3 3 33 4.9 6

k. Market 4 6 16 6 1 33 4.3 9

l. Operational 3 9 12 6 3 33 4.5 8

m. Legal and Regulatory 0 4 11 14 4 33 2.1 17

n. Conduct 1 2 7 15 8 33 1.9 19

o. Reputation 0 4 7 13 9 33 2.0 18

p. Concentration 5 2 20 4 2 33 4.3 9

q. Environmental (sectoral and macro risks)

1 6 11 7 8 33 3.5 14

r. Strategic 6 1 8 11 7 33 4.0 12

s. Other categories (explain) 1 1 1 6 21 30 2.4 16


23 The weights are not necessarily the midpoints of the respective ranges. An assumption was made that the average in the “1 to 4” category might be higher than the midpoint, because the use of only a single indicator for a category is not often seen in practice.

13. To what extent has YOUR AUTHORITY progressed in revising the FHSIs it uses to take account of anticipated changes in financial reporting and regulatory requirements related to IFRS 9 and IFRS 17?

(1) Revisions were needed and have already been made (2) No revisions were considered necessary (3) Revisions will be needed, but have not yet been made (4) The need for revisions has not yet been considered (5) Not applicable, because this category is not used (6) Not applicable, because IFRS is not used by insurers in YOUR JURISDICTION

Weights for index: 10 9 5 0 omit omit

(1) (2) (3) (4) (5) (6) Total Index Rank

a. Capital 3 2 12 12 0 0 29 3.7 2

b. Assets 3 3 11 12 0 0 29 3.9 1

c. Reinsurance 3 2 9 15 0 0 29 3.2 11

d. Actuarial 4 1 10 14 0 0 29 3.4 6

e. Management 1 3 10 15 0 0 29 3.0 12

f. Earnings 3 2 10 14 0 0 29 3.4 6

g. Liquidity 2 2 11 13 1 0 29 3.3 9

h. Subsidiaries (or Group or Related Parties)

1 0 12 12 3 0 28 2.8 16

i. Insurance 4 1 11 12 0 0 28 3.7 2

j. Credit 1 3 11 12 1 0 28 3.4 6

k. Market 1 2 10 14 0 0 27 2.9 13

l. Operational 1 4 9 12 1 0 27 3.5 4

m. Legal and Regulatory 2 3 9 14 0 0 28 3.3 9

n. Conduct 2 3 8 12 3 0 28 3.5 4

o. Reputation 1 2 9 14 2 0 28 2.8 16

p. Concentration 1 2 10 15 0 0 28 2.8 16

q. Environmental (sectoral and macro risks)

1 1 10 12 4 0 28 2.9 13

r. Strategic 1 2 10 14 1 0 28 2.9 13

s. Other categories (explain) 0 0 3 5 9 0 17 1.9 19

Total and Average Index 35 38 185 243 25 0 3.2

14. In addition to the resources and tools currently available (for example, the Core Curriculum modules), to what extent would the following initiatives that might be considered by the IMF, the WBG, or others be useful to YOUR AUTHORITY in enhancing your use of FHSIs?

(1) Very useful (2) Useful (3) Somewhat useful (4) Not useful



a. A paper that summarizes the results of this survey and briefly discusses the use of FHSIs

15 11 5 0 31 8.0 8

b. A list of FHSIs used by insurance supervisors 23 7 2 0 32 9.0 1

c. A mapping of FHSIs to risk‐assessment categories 20 8 4 0 32 8.5 4

d. Guidance on the calculation of specific FHSIs 21 8 2 1 32 8.6 3

e. Guidance on the interpretation of specific FHSIs 21 9 1 1 32 8.7 2

f. A process for obtaining ongoing input on the above items and making periodic updates

14 10 7 1 32 7.4 12

g. An accessible database of the FHSIs used by individual supervisors and the supervisory benchmarks they have established

20 6 4 2 32 8.1 7

h. An Excel workbook that can be used to calculate FHSIs and make comparisons among insurers

22 5 0 5 32 8.0 8

i. Development for trainers 19 5 5 3 32 7.7 10

j. Regional or international training seminars 21 5 4 2 32 8.2 5

k. Interactive webinars 18 10 3 1 32 8.2 5

l. Individual e‐learning materials 14 12 5 1 32 7.6 11

m. Developing similar resources and tools for pensions supervisors

16 7 3 6 32 6.9 13

n. Other (please elaborate) 6 0 0 10 16 3.8 14


1. Capital

15. Does YOUR AUTHORITY use the following FHSIs?

(1) Yes, as described (2) An arithmetic transformation is used (3) No

Weights for index: 10 8 0

(1) (2) (3) Total Index Rank

1.01 : Gross written premium / capital 13 1 18 32 4.3 6

1.02 : Net written premium / capital 17 0 15 32 5.3 5

1.03 : Capital / total assets 15 4 13 32 5.7 4

1.04 : Capital / invested assets [FSI] 6 1 24 31 2.2 10

1.05 : Capital / technical provisions 10 4 18 32 4.1 7

1.06 : Cover of solvency margin 27 1 4 32 8.7 1

1.07 : Risk‐based capital adequacy ratios 20 1 11 32 6.5 3

1.08 : Growth in capital 26 2 4 32 8.6 2

1.09 : Net growth in capital 10 2 20 32 3.6 8

1.10 : Statutory deposit / required deposit 11 0 21 32 3.4 9

Total and Average Index 155 16 148 5.3

16. What are the views of YOUR AUTHORITY about the usefulness of the following FHSIs (or arithmetic transformations of them)?

(1) We use it, and find it useful (2) We use it, but do not find it very useful (3) We do not use it, because we use other FHSIs that provide similar information (4) We do not use it, but it seems like it might be useful (5) We do not use it, and it does not seem like it would be very useful

Weights for index: 10 2 5 7 0

(1) (2) (3) (4) (5) Total Index Rank

1.01 : Gross written premium / capital 13 0 4 10 4 31 7.1 7

1.02 : Net written premium / capital 17 0 1 9 4 31 7.7 5

1.03 : Capital / total assets 18 0 2 11 0 31 8.6 3

1.04 : Capital / invested assets [FSI] 6 0 5 14 6 31 5.9 9

1.05 : Capital / technical provisions 11 0 4 14 2 31 7.4 6

1.06 : Cover of solvency margin 28 0 0 2 1 31 9.5 1

1.07 : Risk‐based capital adequacy ratios 20 1 1 7 2 31 8.3 4

1.08 : Growth in capital 28 0 0 2 1 31 9.5 1

1.09 : Net growth in capital 12 0 4 11 4 31 7.0 8

1.10 : Statutory deposit / required deposit 9 1 1 5 15 31 4.3 10


17. What are the views of YOUR AUTHORITY about the draft guidance that has been prepared for the following FHSIs? (More than one response may be entered, where applicable. Use the comment boxes to suggest specific improvements.)

(1) The guidance is sufficiently clear and detailed (2) The guidance is unclear (3) More detail on calculating the FHSI would be useful (4) More guidance on interpreting the results would be useful



1.01 : Gross written premium / capital 24 0 1 3 28 8.6 2

1.02 : Net written premium / capital 24 0 1 3 28 8.6 2

1.03 : Capital / total assets 24 0 1 4 29 8.3 4

1.04 : Capital / invested assets [FSI] 21 0 3 4 28 7.5 10

1.05 : Capital / technical provisions 23 0 1 5 29 7.9 7

1.06 : Cover of solvency margin 24 0 4 2 30 8.0 5

1.07 : Risk‐based capital adequacy ratios 22 0 4 2 28 7.9 7

1.08 : Growth in capital 25 0 1 2 28 8.9 1

1.09 : Net growth in capital 21 0 4 2 27 7.8 9

1.10 : Statutory deposit / required deposit

24 1 3 2 30 8.0 5


18. What are the views of YOUR AUTHORITY about the draft mapping to risk‐assessment categories that has been prepared for the following FHSIs? (More than one response may be entered, where applicable. Use the comment boxes to suggest specific changes.)

(1) The mapping seems appropriate (2) The mapping includes categories for which this FHSI is not relevant (3) The mapping omits some categories for which this FHSI is relevant



1.01 : Gross written premium / capital 26 0 0 26 10.0 1

1.02 : Net written premium / capital 25 0 1 26 9.6 5

1.03 : Capital / total assets 27 0 0 27 10.0 1

1.04 : Capital / invested assets [FSI] 25 0 1 26 9.6 5

1.05 : Capital / technical provisions 25 0 1 26 9.6 5

1.06 : Cover of solvency margin 26 0 1 27 9.6 5

1.07 : Risk‐based capital adequacy ratios 27 0 1 28 9.6 5

1.08 : Growth in capital 26 0 0 26 10.0 1

1.09 : Net growth in capital 26 0 0 26 10.0 1

1.10 : Statutory deposit / required deposit 27 2 1 30 9.0 10


19. Which the following best describes the use of supervisory benchmarks by YOUR AUTHORITY for the following FHSIs (or arithmetic transformations of them)?

(1) Benchmarks have been established, which reflect requirements of legislation (2) Benchmarks have been established, which are largely based on experience in YOUR JURISDICTION (3) Benchmarks have been established, which are largely based on those used by other supervisors (4) No benchmarks are used, but it seems like they might be useful (5) No benchmarks are used, and it does not seem like they would be very useful (6) Not applicable, because YOUR AUTHORITY does not use this FHSI

Weights for index: 10 10 7 5 0 omit

(1) (2) (3) (4) (5) (6) Total Index Rank

1.01 : Gross written premium / capital

2 6 2 5 2 14 31 7.0 7

1.02 : Net written premium / capital 3 6 4 6 1 11 31 7.4 4

1.03 : Capital / total assets 3 6 2 9 1 9 30 7.1 5

1.04 : Capital / invested assets [FSI] 3 3 1 5 1 18 31 7.1 5

1.05 : Capital / technical provisions 2 5 3 4 4 13 31 6.2 10

1.06 : Cover of solvency margin 17 6 1 3 1 3 31 9.0 1


14 3 1 3 1 8 30 8.7 2

1.08 : Growth in capital 3 8 4 11 2 3 31 6.9 8

1.09 : Net growth in capital 2 3 2 6 2 15 30 6.3 9


6 3 1 2 1 18 31 8.2 3


20. If YOUR AUTHORITY has established benchmarks for the following FHSIs, what benchmarks are used for conventional insurance activities? (If the FHSI is not used by YOUR AUTHORITY or no benchmark has been established, please leave the relevant cell blank.)

(1) Minimum for non‐life insurance (2) Maximum for non‐life insurance (3) Minimum for life insurance (4) Maximum for life insurance

First row : number of quantitative responses (1) (2) (3) (4)

1.01 : Gross written premium / capital 2 3 1 1

Lowest 100 400 100 900

Average 200 667 100 900

Highest 300 900 100 900

1.02 : Net written premium / capital 3 5 3 3

Lowest 0 300 0 300

Average 133 460 33 933

Highest 300 1000 100 2000

1.03 : Capital / total assets 1 0 0 0

Lowest 100 N/A N/A N/A

Average 100 N/A N/A N/A

Highest 100 N/A N/A N/A

1.04 : Capital / invested assets [FSI] 1 1 1 1

Lowest 70 100 30 100

Average 70 100 30 100

Highest 70 100 30 100

1.05 : Capital / technical provisions 3 2 1 1

Lowest 0 100 50 100

Average 50 175 50 100

Highest 100 250 50 100

1.06 : Cover of solvency margin 12 1 11 1

Lowest 100 150 100 200

Average 109 150 116 200

Highest 150 150 150 200

1.07 : Risk‐based capital adequacy ratios 7 1 6 1

Lowest 100 130 100 130

Average 126 130 122 130

Highest 200 130 150 130

1.08 : Growth in capital 4 2 3 1

Lowest 5 50 0 50

Average 11 50 10 50

Highest 20 50 20 50

1.09 : Net growth in capital 0 0 0 0

Lowest N/A N/A N/A N/A

Average N/A N/A N/A N/A

Highest N/A N/A N/A N/A

1.10 : Statutory deposit / required deposit 1 0 0 0




Notes:

1.06: Cover of solvency margin: One supervisor reports benchmarks that differ by size. One supervisor

reports three levels of benchmarks (middle level included in table).

1.07: Risk‐based capital adequacy ratios: One supervisor reports three levels of benchmarks (middle level

included in table).

2. Assets





2.01 : (Real estate + unquoted equities + receivables) / total assets 7 0 24 31 2.3 12

2.02 : Real estate / total assets 17 2 13 32 5.8 2

2.03 : Real estate / capital 5 0 26 31 1.6 17

2.04 : (Real estate + mortgages) / total assets 4 2 25 31 1.8 16

2.05 : Maximum deposits in a single bank / total assets 9 1 21 31 3.2 9

2.06 : (Cash + loans + investments) / total assets 12 3 17 32 4.5 4

2.07 : Receivables / (gross written premium + reinsurance recoveries) 8 1 23 32 2.8 11

2.08 : Receivables / capital 9 0 22 31 2.9 10

2.09 : (Non‐performing investment assets and loans + receivables over 90 days) / total assets

6 1 24 31 2.2 14

2.10 : Receivables over 90 days / total receivables 12 3 17 32 4.5 4

2.11 : Equities / total assets 16 0 14 30 5.3 3

2.12 : Non‐performing loans / total gross loans 7 0 23 30 2.3 12

2.13 : Maximum investment in a single counterparty / total assets 12 1 18 31 4.1 8

2.14 : Maximum receivable from a single counterparty / total assets 6 1 24 31 2.2 14

2.15 : Gross asset position in financial derivatives / capital 3 0 27 30 1.0 18

2.16 : Gross liability position in financial derivatives / capital 2 0 28 30 0.7 19

2.17 : Investments: distribution by type 22 1 8 31 7.4 1

2.18 : Investments: geographical distribution 13 0 17 30 4.3 6

2.19 : Investments: sectoral distribution 13 0 17 30 4.3 6





(1) (2) (3) (4) (5) Total Index Rank

2.01 : (Real estate + unquoted equities + receivables) / total assets

7 0 3 14 7 31 5.9 14

2.02 : Real estate / total assets 19 0 1 7 4 31 7.9 3

2.03 : Real estate / capital 5 0 2 16 8 31 5.5 16

2.04 : (Real estate + mortgages) / total assets 6 0 4 16 5 31 6.2 12

2.05 : Maximum deposits in a single bank / total assets 9 0 3 16 4 32 6.8 9

2.06 : (Cash + loans + investments) / total assets 13 0 3 11 5 32 6.9 8

2.07 : Receivables / (gross written premium + reinsurance recoveries)

9 0 1 14 8 32 6.0 13

2.08 : Receivables / capital 8 0 2 18 4 32 6.8 9


6 0 1 16 8 31 5.7 15

2.10 : Receivables over 90 days / total receivables 14 0 2 11 5 32 7.1 7

2.11 : Equities / total assets 18 0 1 10 2 31 8.2 2

2.12 : Non‐performing loans / total gross loans 7 0 0 15 10 32 5.5 16


12 0 3 15 2 32 7.5 4

2.14 : Maximum receivable from a single counterparty / total assets

6 0 2 21 3 32 6.8 9

2.15 : Gross asset position in financial derivatives / capital 3 0 2 14 12 31 4.5 19

2.16 : Gross liability position in financial derivatives / capital

2 0 2 16 11 31 4.6 18

2.17 : Investments: distribution by type 24 0 0 7 1 32 9.0 1

2.18 : Investments: geographical distribution 14 0 2 12 3 31 7.5 4

2.19 : Investments: sectoral distribution 14 0 1 11 5 31 7.2 6







25 0 5 3 33 7.6 16

2.02 : Real estate / total assets 27 0 3 3 33 8.2 9

2.03 : Real estate / capital 26 0 3 4 33 7.9 13

2.04 : (Real estate + mortgages) / total assets 26 0 2 4 32 8.1 10

2.05 : Maximum deposits in a single bank / total assets 26 1 2 3 32 8.1 10

2.06 : (Cash + loans + investments) / total assets 28 0 2 3 33 8.5 3


24 1 3 4 32 7.5 17

2.08 : Receivables / capital 28 0 2 3 33 8.5 3


24 0 3 4 31 7.7 15

2.10 : Receivables over 90 days / total receivables 28 0 2 2 32 8.8 2

2.11 : Equities / total assets 27 0 1 2 30 9.0 1

2.12 : Non‐performing loans / total gross loans 25 0 2 4 31 8.1 10


26 0 2 3 31 8.4 5


26 0 2 3 31 8.4 5

2.15 : Gross asset position in financial derivatives / capital

23 0 2 6 31 7.4 18


23 0 2 6 31 7.4 18

2.17 : Investments: distribution by type 26 0 3 2 31 8.4 5

2.18 : Investments: geographical distribution 27 0 3 2 32 8.4 5

2.19 : Investments: sectoral distribution 27 2 3 2 34 7.9 13







27 0 1 28 9.6 11

2.02 : Real estate / total assets 28 0 0 28 10.0 1

2.03 : Real estate / capital 28 0 0 28 10.0 1

2.04 : (Real estate + mortgages) / total assets 28 0 0 28 10.0 1

2.05 : Maximum deposits in a single bank / total assets 27 1 0 28 9.6 11

2.06 : (Cash + loans + investments) / total assets 26 0 2 28 9.3 16


27 0 1 28 9.6 11

2.08 : Receivables / capital 29 0 0 29 10.0 1


26 1 1 28 9.3 16

2.10 : Receivables over 90 days / total receivables 29 0 0 29 10.0 1

2.11 : Equities / total assets 27 0 1 28 9.6 11

2.12 : Non‐performing loans / total gross loans 27 1 0 28 9.6 11


28 0 0 28 10.0 1


28 0 0 28 10.0 1

2.15 : Gross asset position in financial derivatives / capital 28 0 0 28 10.0 1

2.16 : Gross liability position in financial derivatives / capital 28 0 0 28 10.0 1

2.17 : Investments: distribution by type 29 0 0 29 10.0 1

2.18 : Investments: geographical distribution 27 1 1 29 9.3 16

2.19 : Investments: sectoral distribution 26 3 2 31 8.4 19




Weights for index:

(1) (2) (3) (4) (5) (6) Total Index Rank


1 5 0 7 0 16 29 7.3 2

2.02 : Real estate / total assets 3 6 2 11 2 5 29 6.6 10

2.03 : Real estate / capital 1 3 0 8 0 17 29 6.7 9

2.04 : (Real estate + mortgages) / total assets 1 4 1 7 0 16 29 7.1 6

2.05 : Maximum deposits in a single bank / total assets

3 5 0 7 1 13 29 7.2 4

2.06 : (Cash + loans + investments) / total assets 1 7 0 8 3 11 30 6.3 13


0 3 0 11 1 14 29 5.7 15

2.08 : Receivables / capital 3 4 1 9 0 14 31 7.2 4


0 2 0 10 1 16 29 5.4 17

2.10 : Receivables over 90 days / total receivables 3 6 0 8 0 13 30 7.6 1

2.11 : Equities / total assets 6 3 1 9 3 7 29 6.5 11

2.12 : Non‐performing loans / total gross loans 1 4 0 7 1 16 29 6.5 11


5 4 0 9 1 10 29 7.1 6


5 2 0 8 0 14 29 7.3 2


1 1 0 11 1 15 29 5.4 17


0 1 0 11 1 16 29 5.0 19

2.17 : Investments: distribution by type 6 5 2 10 2 5 30 7.0 8

2.18 : Investments: geographical distribution 4 3 0 14 3 6 30 5.8 14

2.19 : Investments: sectoral distribution 2 3 0 12 3 10 30 5.5 16





2.01 : (Real estate + unquoted equities + receivables) / total assets 0 0 0 0




2.02 : Real estate / total assets 0 4 0 3

Lowest N/A 10 N/A 10

Average N/A 13 N/A 18

Highest N/A 20 N/A 30

2.03 : Real estate / capital 0 0 0 0




2.04 : (Real estate + mortgages) / total assets 0 2 0 2

Lowest N/A 20 N/A 0



2.05 : Maximum deposits in a single bank / total assets 0 3 0 2

Lowest N/A 5 N/A 15



2.06 : (Cash + loans + investments) / total assets 1 0 1 0

Lowest 70 N/A 90 N/A

Average 70 N/A 90 N/A

Highest 70 N/A 90 N/A

2.07 : Receivables / (gross written premium + reinsurance recoveries) 0 0 0 0




2.08 : Receivables / capital 0 2 0 1





0 0 0 0




2.10 : Receivables over 90 days / total receivables 0 2 0 1

Lowest N/A 0 N/A 0



2.11 : Equities / total assets 0 4 0 3

Lowest N/A 20 N/A 5



2.12 : Non‐performing loans / total gross loans 0 1 0 1




2.13 : Maximum investment in a single counterparty / total assets 0 4 0 3

Lowest N/A 5 N/A 5

Average N/A 8 N/A 8


2.14 : Maximum receivable from a single counterparty / total assets 0 1 0 1

Lowest N/A 5 N/A 5

Average N/A 5 N/A 5

Highest N/A 5 N/A 5

2.15 : Gross asset position in financial derivatives / capital 0 0 0 0




2.16 : Gross liability position in financial derivatives / capital 0 0 0 0




2.17 : Investments: distribution by type 1 2 1 2

Lowest 30 5 30 5

Average 30 28 30 28

Highest 30 50 30 50

2.18 : Investments: geographical distribution 2 2 1 2

Lowest 30 10 30 10

Average 33 30 30 30

Highest 35 50 30 50

2.19 : Investments: sectoral distribution 0 0 0 0




Notes:

2.08: Receivables / capital: One supervisor sets a maximum benchmark of 10% for insurance‐related

receivables (included in table).

2.10: Receivables over 90 days / total receivables: One supervisor sets a maximum benchmark of 0%

after 30 days (included in table).

2.11: Equities / total assets: One supervisor sets maximum benchmarks for listed securities of 30% for

non‐life insurers (included in table) and for unlisted securities of 5% for life insurers (included in table).

2.13: Maximum investment in a single counterparty / total assets: One supervisor sets maximum

benchmarks for named counterparties of 20%, for listed counterparties of 10%, and for others of 5%

(latter is included in table).

2.17: Investments: distribution by type: Some supervisors set benchmarks that vary by type of

investment. Some supervisors benchmark against market average distributions (for example, in the

European Union).

2.18: Investments: geographical distribution: The supervisors that provided benchmarks did not specify

whether they related to local investments or foreign investments.

3. Reinsurance





3.01 : Risk retention ratio 29 0 3 32 9.1 1

3.02 : (Reinsurance recoveries + reinsurance commissions) / reinsurance ceded

7 3 22 32 2.9 3

3.03 : Maximum exposure to single risk / capital 9 1 22 32 3.1 2

3.04 : Maximum exposure to single event / capital 6 1 25 32 2.1 4

3.05 : Maximum premium ceded to a single reinsurer / gross written premium

5 1 26 32 1.8 5





(1) (2) (3) (4) (5) Total Index Rank

3.01 : Risk retention ratio 29 1 0 2 0 32 9.6 1


9 0 1 19 1 30 7.6 2

3.03 : Maximum exposure to single risk / capital 9 0 0 22 1 32 7.6 2

3.04 : Maximum exposure to single event / capital 7 0 0 23 1 31 7.5 4


5 1 1 22 2 31 6.8 5






3.01 : Risk retention ratio 30 0 0 0 30 10.0 1


27 0 0 1 28 9.6 2

3.03 : Maximum exposure to single risk / capital 27 0 3 1 31 8.7 4

3.04 : Maximum exposure to single event / capital 27 0 2 0 29 9.3 3


27 2 1 1 31 8.7 4






3.01 : Risk retention ratio 28 1 0 29 9.7 4


28 0 0 28 10.0 1

3.03 : Maximum exposure to single risk / capital 29 0 0 29 10.0 1

3.04 : Maximum exposure to single event / capital 28 0 0 28 10.0 1


28 1 2 31 9.0 5





(1) (2) (3) (4) (5) (6) Total Index Rank

3.01 : Risk retention ratio 2 10 2 12 5 1 32 6.3 1


0 4 2 11 2 10 29 5.7 4

3.03 : Maximum exposure to single risk / capital 3 2 2 10 1 13 31 6.3 1

3.04 : Maximum exposure to single event / capital

3 0 2 9 2 14 30 5.6 5


4 1 1 10 1 13 30 6.3 1




(1) (2) (3) (4)

3.01 : Risk retention ratio 6 5 2 2

Lowest 20 70 40 80

Average 40 80 58 90

Highest 70 99.5 75 99


1 2 2 2

Lowest 90 30 5 25

Average 90 70 48 68

Highest 90 110 90 110

3.03 : Maximum exposure to single risk / capital 0 2 0 1

Lowest N/A 5 N/A 10



3.04 : Maximum exposure to single event / capital 0 2 0 1





1 3 2 3

Lowest 30 25 5 25

Average 30 48 18 33

Highest 30 70 30 50

Notes:

3.01: Risk retention ratio: One supervisor sets a maximum benchmark of 25% if only one reinsurer is

being used.

3.05: Maximum premium ceded to a single reinsurer / gross written premium: One supervisor sets a

lower maximum benchmark of 10% for reinsurers rated less than BBB, versus 25% for higher‐rated

reinsurers (included in table).

4. Actuarial





4.01 : Net claims provisions / average of net claims paid in last three years

4 5 23 32 2.5 7

4.02 : Net technical provisions / average of net written premium in last three years

4 3 25 32 2.0 8

4.03 : Net claims provisions / capital 7 3 22 32 2.9 6

4.04 : Claims development 16 4 11 31 6.2 2

4.05 : Underwritten business: distribution by class of business 22 4 6 32 7.9 1

4.06 : Underwritten business: geographical distribution 12 1 19 32 4.0 4

4.07 : Underwritten business: sectoral distribution 4 0 28 32 1.3 9

4.08 : Actuarial assumption: short‐term interest rate 12 0 20 32 3.8 5

4.09 : Actuarial assumption: long‐term interest rate 14 0 18 32 4.4 3





(1) (2) (3) (4) (5) Total Index Rank


8 0 2 19 2 31 7.2 7


5 0 1 22 3 31 6.7 8

4.03 : Net claims provisions / capital 10 0 3 18 1 32 7.5 4

4.04 : Claims development 20 0 1 10 0 31 8.9 2

4.05 : Underwritten business: distribution by class of business

26 0 0 4 1 31 9.3 1

4.06 : Underwritten business: geographical distribution

13 0 0 17 1 31 8.0 3

4.07 : Underwritten business: sectoral distribution

6 0 0 19 6 31 6.2 9

4.08 : Actuarial assumption: short‐term interest rate

12 0 0 15 4 31 7.3 6

4.09 : Actuarial assumption: long‐term interest rate

14 0 0 13 4 31 7.5 4







25 0 2 4 31 8.1 6


25 1 2 3 31 8.1 6

4.03 : Net claims provisions / capital 26 0 2 3 31 8.4 5

4.04 : Claims development 27 0 0 2 29 9.3 1


27 0 0 2 29 9.3 1

4.06 : Underwritten business: geographical distribution 24 0 1 3 28 8.6 3

4.07 : Underwritten business: sectoral distribution 24 1 1 2 28 8.6 3

4.08 : Actuarial assumption: short‐term interest rate 25 0 3 3 31 8.1 6

4.09 : Actuarial assumption: long‐term interest rate 25 1 3 3 32 7.8 9







27 0 0 27 10.0 1


26 0 1 27 9.6 2

4.03 : Net claims provisions / capital 26 0 1 27 9.6 2

4.04 : Claims development 25 0 3 28 8.9 7


28 0 2 30 9.3 5

4.06 : Underwritten business: geographical distribution 26 0 2 28 9.3 5

4.07 : Underwritten business: sectoral distribution 27 0 1 28 9.6 2

4.08 : Actuarial assumption: short‐term interest rate 24 0 3 27 8.9 7

4.09 : Actuarial assumption: long‐term interest rate 24 1 4 29 8.3 9





(1) (2) (3) (4) (5) (6) Total Index Rank


1 3 1 14 1 11 31 5.9 2


0 2 0 16 1 12 31 5.3 6

4.03 : Net claims provisions / capital 0 4 1 15 1 11 32 5.8 4

4.04 : Claims development 2 4 1 15 4 5 31 5.5 5


3 0 1 15 8 4 31 4.1 7


0 0 0 13 7 11 31 3.3 9


0 0 0 12 5 14 31 3.5 8


4 2 1 10 3 11 31 5.9 2


5 3 1 9 3 10 31 6.3 1






1 1 1 1

Lowest 75 125 75 125

Average 75 125 75 125

Highest 75 125 75 125


0 0 0 0




4.03 : Net claims provisions / capital 0 2 0 0

Lowest N/A 250 N/A N/A

Average N/A 250 N/A N/A

Highest N/A 250 N/A N/A

4.04 : Claims development 1 1 0 0

Lowest 20 20 N/A N/A

Average 20 20 N/A N/A

Highest 20 20 N/A N/A

4.05 : Underwritten business: distribution by class of business 0 1 0 1

Lowest N/A 5 N/A 5

Average N/A 5 N/A 5

Highest N/A 5 N/A 5

4.06 : Underwritten business: geographical distribution 0 0 0 0




4.07 : Underwritten business: sectoral distribution 0 0 0 0




4.08 : Actuarial assumption: short‐term interest rate 0 0 0 0




4.09 : Actuarial assumption: long‐term interest rate 0 0 0 0




Notes:

4.08: Actuarial assumption: short‐term interest rate: Some supervisors set maximum benchmarks that

vary with market conditions: one uses 60% of the 5‐year government bond rate; another uses the zero‐

coupon spot yield for matching durations.

4.09: Actuarial assumption: long‐term interest rate: Some supervisors set maximum benchmarks that


coupon spot yield for a 15‐year duration.

5. Management





5.01 : Gross written premium per employee 5 1 27 33 1.8 10

5.02 : Assets per employee 4 1 28 33 1.5 11

5.03 : Operating expenses / gross written premium 20 6 6 32 7.8 4

5.04 : Personnel expenses / gross written premium 7 4 22 33 3.1 7

5.05 : Growth in gross written premium 29 1 3 33 9.0 1

5.06 : Growth in net written premium 26 2 5 33 8.4 2

5.07 : Growth in total assets 27 1 5 33 8.4 2

5.08 : Gross written premium / sum insured 4 0 29 33 1.2 12

5.09 : Gross written premium / number of policies 8 2 23 33 2.9 8

5.10 : Complaint index 7 3 23 33 2.8 9

5.11 : Pay‐out ratio 11 4 18 33 4.3 6

5.12 : Board composition 16 2 15 33 5.3 5





(1) (2) (3) (4) (5) Total Index Rank

5.01 : Gross written premium per employee 7 0 0 13 11 31 5.2 11

5.02 : Assets per employee 5 0 0 12 14 31 4.3 12


21 0 2 5 3 31 8.2 4

5.04 : Personnel expenses / gross written premium

8 0 4 9 10 31 5.3 10

5.05 : Growth in gross written premium 28 0 1 2 1 32 9.3 1

5.06 : Growth in net written premium 24 0 4 2 2 32 8.6 3

5.07 : Growth in total assets 26 0 0 4 2 32 9.0 2

5.08 : Gross written premium / sum insured 4 0 0 20 7 31 5.8 9

5.09 : Gross written premium / number of policies

8 1 1 16 5 31 6.4 8

5.10 : Complaint index 7 1 2 17 4 31 6.5 7

5.11 : Pay‐out ratio 10 0 2 16 3 31 7.2 5

5.12 : Board composition 17 0 0 8 7 32 7.1 6






5.01 : Gross written premium per employee 26 0 1 3 30 8.7 8

5.02 : Assets per employee 26 0 1 3 30 8.7 8


26 0 2 2 30 8.7 8


26 0 1 2 29 9.0 3

5.05 : Growth in gross written premium 29 0 1 1 31 9.4 1

5.06 : Growth in net written premium 29 0 1 1 31 9.4 1

5.07 : Growth in total assets 28 0 1 2 31 9.0 3

5.08 : Gross written premium / sum insured 26 0 1 3 30 8.7 8


27 0 1 2 30 9.0 3

5.10 : Complaint index 27 0 2 1 30 9.0 3

5.11 : Pay‐out ratio 26 0 2 1 29 9.0 3

5.12 : Board composition 24 1 3 3 31 7.7 12






5.01 : Gross written premium per employee 28 0 1 29 9.7 2

5.02 : Assets per employee 28 0 0 28 10.0 1


28 0 2 30 9.3 6


27 0 2 29 9.3 6

5.05 : Growth in gross written premium 28 0 2 30 9.3 6

5.06 : Growth in net written premium 28 0 2 30 9.3 6

5.07 : Growth in total assets 28 0 2 30 9.3 6

5.08 : Gross written premium / sum insured 27 0 2 29 9.3 6

5.09 : Gross written premium / number of policies 28 0 1 29 9.7 2

5.10 : Complaint index 28 0 2 30 9.3 6

5.11 : Pay‐out ratio 28 0 1 29 9.7 2

5.12 : Board composition 29 1 1 31 9.4 5





(1) (2) (3) (4) (5) (6) Total Index Rank

5.01 : Gross written premium per employee

0 2 0 9 3 16 30 4.6 10

5.02 : Assets per employee 0 2 0 9 3 16 30 4.6 10


3 8 1 13 1 5 31 7.0 2


0 5 0 9 1 15 30 6.3 3

5.05 : Growth in gross written premium 3 9 3 10 6 1 32 6.2 4

5.06 : Growth in net written premium 2 8 4 8 6 4 32 6.0 5

5.07 : Growth in total assets 2 6 2 13 6 3 32 5.5 6

5.08 : Gross written premium / sum insured

0 0 1 10 2 17 30 4.4 12


1 1 1 12 3 12 30 4.8 9

5.10 : Complaint index 0 2 0 15 2 12 31 5.0 8

5.11 : Pay‐out ratio 1 2 1 14 3 9 30 5.1 7

5.12 : Board composition 5 4 2 8 1 12 32 7.2 1





5.01 : Gross written premium per employee 0 0 0 0




5.02 : Assets per employee 0 0 0 0




5.03 : Operating expenses / gross written premium 2 5 2 4

Lowest 25 30 25 30

Average 28 40 28 41

Highest 30 50 30 50

5.04 : Personnel expenses / gross written premium 0 2 0 2




5.05 : Growth in gross written premium 5 4 4 4

Lowest 1.5 25 5 15

Average 17 29 20 26

Highest 33 33 33 33

5.06 : Growth in net written premium 3 4 2 3

Lowest 33 25 0 30

Average 33 31 17 38

Highest 33 33 33 50

5.07 : Growth in total assets 1 0 2 1

Lowest 2 N/A 3 20

Average 2 N/A 3 20

Highest 2 N/A 3 20

5.08 : Gross written premium / sum insured 0 0 0 0




5.09 : Gross written premium / number of policies 0 0 0 0




5.10 : Complaint index 0 0 0 0




5.11 : Pay‐out ratio 0 0 0 0




5.12 : Board composition 4 0 4 0

Lowest 2 N/A 2 N/A



Notes:

5.12: Board composition: Percentages shown in table are for independent directors. Several supervisors

set benchmarks for minimum number of directors (2, 5, or 7). One supervisor sets benchmarks for

maximum percentage of common directors and maximum number of executive directors.

6. Earnings





6.01 : Claims ratio 28 3 1 32 9.5 1

6.02 : Gross claims ratio 23 2 7 32 7.7 5

6.03 : Expense ratio 28 3 2 33 9.2 2

6.04 : Combined ratio [FSI Non‐Life] 28 3 2 33 9.2 2

6.05 : Investment income ratio 20 3 10 33 6.8 6

6.06 : Operating ratio 14 4 15 33 5.2 9

6.07 : Profitability ratio 19 4 10 33 6.7 8

6.08 : Return on revenue 9 1 23 33 3.0 12

6.09 : Revisions to technical provisions / technical provisions 6 2 25 33 2.3 15

6.10 : Nominal net investment yield 9 4 19 32 3.8 11

6.11 : Real net investment yield 3 3 26 32 1.7 16

6.12 : Return on equity (ROE) [FSI] 28 1 4 33 8.7 4

6.13 : Earnings per employee 3 0 29 32 0.9 17

6.14 : Return on assets (ROA) [FSI Life] 21 2 10 33 6.8 6

6.15 : Policies lapsed or surrendered / policies in force at beginning of the year

12 3 18 33 4.4 10

6.16 : Market value / book value 7 2 24 33 2.6 13

6.17 : Price / earnings ratio 6 3 24 33 2.5 14

6.18 : Price / gross written premium 2 0 31 33 0.6 18





(1) (2) (3) (4) (5) Total Index Rank

6.01 : Claims ratio 29 0 1 1 1 32 9.4 2

6.02 : Gross claims ratio 24 0 1 5 1 31 9.0 5

6.03 : Expense ratio 29 0 1 1 1 32 9.4 2

6.04 : Combined ratio [FSI Non‐Life] 29 0 1 1 1 32 9.4 2

6.05 : Investment income ratio 20 0 1 7 3 31 8.2 8

6.06 : Operating ratio 14 0 4 10 3 31 7.4 10

6.07 : Profitability ratio 20 0 3 7 2 32 8.3 7

6.08 : Return on revenue 11 0 2 15 3 31 7.3 11

6.09 : Revisions to technical provisions / technical provisions

8 0 1 18 4 31 6.8 13

6.10 : Nominal net investment yield 11 0 2 15 3 31 7.3 11

6.11 : Real net investment yield 4 0 2 20 5 31 6.1 16

6.12 : Return on equity (ROE) [FSI] 27 0 0 5 0 32 9.5 1

6.13 : Earnings per employee 3 0 0 16 12 31 4.6 18

6.14 : Return on assets (ROA) [FSI Life] 20 0 0 9 2 31 8.5 6


14 0 0 14 3 31 7.7 9

6.16 : Market value / book value 6 0 1 18 6 31 6.2 15

6.17 : Price / earnings ratio 7 0 1 17 6 31 6.3 14

6.18 : Price / gross written premium 3 0 0 22 6 31 5.9 17






6.01 : Claims ratio 28 0 1 2 31 9.0 7

6.02 : Gross claims ratio 26 0 1 3 30 8.7 12

6.03 : Expense ratio 28 0 1 2 31 9.0 7

6.04 : Combined ratio [FSI Non‐Life] 29 0 1 1 31 9.4 1

6.05 : Investment income ratio 26 0 2 2 30 8.7 12

6.06 : Operating ratio 26 0 2 2 30 8.7 12

6.07 : Profitability ratio 29 0 1 1 31 9.4 1

6.08 : Return on revenue 26 0 1 3 30 8.7 12


23 0 5 3 31 7.4 18

6.10 : Nominal net investment yield 26 0 1 2 29 9.0 7

6.11 : Real net investment yield 26 0 1 2 29 9.0 7

6.12 : Return on equity (ROE) [FSI] 28 0 1 1 30 9.3 3

6.13 : Earnings per employee 27 0 1 1 29 9.3 3

6.14 : Return on assets (ROA) [FSI Life] 28 0 1 1 30 9.3 3


28 0 1 1 30 9.3 3

6.16 : Market value / book value 27 0 2 1 30 9.0 7

6.17 : Price / earnings ratio 26 0 3 2 31 8.4 16

6.18 : Price / gross written premium 26 1 3 3 33 7.9 17






6.01 : Claims ratio 29 0 1 30 9.7 6

6.02 : Gross claims ratio 28 0 1 29 9.7 6

6.03 : Expense ratio 26 0 3 29 9.0 13

6.04 : Combined ratio [FSI Non‐Life] 27 0 3 30 9.0 13

6.05 : Investment income ratio 28 0 1 29 9.7 6

6.06 : Operating ratio 26 0 3 29 9.0 13

6.07 : Profitability ratio 27 0 3 30 9.0 13

6.08 : Return on revenue 26 0 3 29 9.0 13


27 0 2 29 9.3 12

6.10 : Nominal net investment yield 28 0 0 28 10.0 1

6.11 : Real net investment yield 28 0 0 28 10.0 1

6.12 : Return on equity (ROE) [FSI] 29 0 0 29 10.0 1

6.13 : Earnings per employee 28 0 0 28 10.0 1

6.14 : Return on assets (ROA) [FSI Life] 29 0 0 29 10.0 1


28 0 1 29 9.7 6

6.16 : Market value / book value 28 0 1 29 9.7 6

6.17 : Price / earnings ratio 28 0 1 29 9.7 6

6.18 : Price / gross written premium 28 1 3 32 8.8 18





(1) (2) (3) (4) (5) (6) Total Index Rank

6.01 : Claims ratio 4 9 4 11 4 0 32 6.7 3

6.02 : Gross claims ratio 2 10 1 11 4 2 30 6.5 6

6.03 : Expense ratio 5 9 3 11 4 0 32 6.8 2

6.04 : Combined ratio [FSI Non‐Life] 5 12 4 8 3 0 32 7.4 1

6.05 : Investment income ratio 3 5 3 11 4 6 32 6.0 8

6.06 : Operating ratio 2 6 2 8 5 7 30 5.8 9

6.07 : Profitability ratio 2 8 3 11 3 5 32 6.5 6

6.08 : Return on revenue 1 3 1 10 6 9 30 4.6 12


0 4 1 8 6 11 30 4.6 12

6.10 : Nominal net investment yield 0 5 1 13 5 6 30 5.1 11

6.11 : Real net investment yield 0 3 1 8 6 12 30 4.3 15

6.12 : Return on equity (ROE) [FSI] 3 10 5 10 4 0 32 6.7 3

6.13 : Earnings per employee 0 1 0 9 6 14 30 3.4 17

6.14 : Return on assets (ROA) [FSI Life] 2 9 1 12 3 4 31 6.6 5


1 6 1 12 4 7 31 5.7 10

6.16 : Market value / book value 0 2 0 9 7 12 30 3.6 16

6.17 : Price / earnings ratio 0 3 1 9 5 12 30 4.6 12

6.18 : Price / gross written premium 0 0 1 8 5 16 30 3.4 17





6.01 : Claims ratio 4 5 3 4

Lowest 30 60 20 50

Average 45 80 33 66

Highest 50 105 50 80

6.02 : Gross claims ratio 2 3 1 2

Lowest 50 75 20 50

Average 50 92 20 63

Highest 50 120 20 75

6.03 : Expense ratio 4 6 3 5

Lowest 10 30 15 30

Average 18 43 20 50

Highest 25 70 25 90

6.04 : Combined ratio [FSI Non‐Life] 5 9 4 6

Lowest 0 65 0 50

Average 59 96 54 92

Highest 85 109 85 109

6.05 : Investment income ratio 3 3 2 1

Lowest 2.5 10 3 10

Average 5 38 5 10

Highest 7 95 6 10

6.06 : Operating ratio 2 1 1 1

Lowest 20 100 80 100

Average 50 100 80 100

Highest 80 100 80 100

6.07 : Profitability ratio 3 0 2 0

Lowest 5 N/A 3 N/A

Average 9 N/A 4 N/A


6.08 : Return on revenue 0 0 0 0




6.09 : Revisions to technical provisions / technical provisions 0 0 0 0




6.10 : Nominal net investment yield 1 1 1 1

Lowest 2.5 7.5 3.5 12.5

Average 2.5 7.5 3.5 12.5

Highest 2.5 7.5 3.5 12.5

6.11 : Real net investment yield 0 0 0 0




6.12 : Return on equity (ROE) [FSI] 5 4 4 3

Lowest 0 15 0 15

Average 10 26 7 18

Highest 20 50 16 20

6.13 : Earnings per employee 0 0 0 0




6.14 : Return on assets (ROA) [FSI Life] 3 1 4 2

Lowest 1 10 0.5 3

Average 3 10 2 7.8

Highest 4 10 4 12.5


0 0 0 1

Lowest N/A N/A N/A 20

Average N/A N/A N/A 20

Highest N/A N/A N/A 20

6.16 : Market value / book value 0 0 0 0




6.17 : Price / earnings ratio 0 0 0 0




6.18 : Price / gross written premium 0 0 0 0




Notes:

6.05: Investment income ratio: One supervisor sets a maximum benchmark equal to the government 6‐

month treasury bill rate.

6.12: Return on equity (ROE) [FSI]: One supervisor sets a maximum benchmark equal to the industry

average for the previous year.

7. Liquidity





7.01 : Liquid assets / current liabilities 19 1 12 32 6.2 2

7.02 : Liquid assets / total liabilities 15 1 16 32 4.9 3

7.03 : Liquid assets / total assets 20 2 9 31 7.0 1

7.04 : Liquid liabilities / total liabilities 9 0 22 31 2.9 5

7.05 : Net open foreign exchange position / capital 0 1 30 31 0.3 6

7.06 : Duration of assets / duration of liabilities 8 4 20 32 3.5 4





(1) (2) (3) (4) (5) Total Index Rank

7.01 : Liquid assets / current liabilities 18 0 2 11 1 32 8.3 2

7.02 : Liquid assets / total liabilities 15 0 4 11 2 32 7.7 3

7.03 : Liquid assets / total assets 21 0 2 7 1 31 8.7 1

7.04 : Liquid liabilities / total liabilities 9 0 2 17 3 31 7.1 5

7.05 : Net open foreign exchange position / capital

0 0 4 20 6 30 5.3 6

7.06 : Duration of assets / duration of liabilities 11 0 1 18 2 32 7.5 4






7.01 : Liquid assets / current liabilities 28 0 1 1 30 9.3 2

7.02 : Liquid assets / total liabilities 29 0 1 1 31 9.4 1

7.03 : Liquid assets / total assets 27 0 1 1 29 9.3 2

7.04 : Liquid liabilities / total liabilities 27 0 1 1 29 9.3 2


26 0 3 2 31 8.4 5

7.06 : Duration of assets / duration of liabilities

27 1 3 2 33 8.2 6






7.01 : Liquid assets / current liabilities 27 0 3 30 9.0 4

7.02 : Liquid assets / total liabilities 27 0 3 30 9.0 4

7.03 : Liquid assets / total assets 25 0 4 29 8.6 6

7.04 : Liquid liabilities / total liabilities 27 0 2 29 9.3 3


28 0 0 28 10.0 1

7.06 : Duration of assets / duration of liabilities 29 1 1 31 9.4 2





(1) (2) (3) (4) (5) (6) Total Index Rank

7.01 : Liquid assets / current liabilities 4 8 1 9 1 8 31 7.5 1

7.02 : Liquid assets / total liabilities 2 4 1 12 2 10 31 6.0 3

7.03 : Liquid assets / total assets 1 6 3 14 2 5 31 6.2 2

7.04 : Liquid liabilities / total liabilities 0 3 1 9 2 15 30 5.5 4


0 0 0 10 3 17 30 3.8 6


1 2 0 13 7 8 31 4.1 5





7.01 : Liquid assets / current liabilities 5 0 3 0




7.02 : Liquid assets / total liabilities 1 0 1 0




7.03 : Liquid assets / total assets 2 1 1 1

Lowest 10 95 30 60

Average 20 95 30 60

Highest 30 95 30 60

7.04 : Liquid liabilities / total liabilities 0 0 0 0




7.05 : Net open foreign exchange position / capital 0 0 0 0




7.06 : Duration of assets / duration of liabilities 0 0 0 0




8. Subsidiaries





8.01 : Group debtors / total assets 3 2 26 31 1.5 4

8.02 : Related party receivables / total assets 10 3 19 32 3.9 1

8.03 : Due to related parties / total assets 6 2 22 30 2.5 3

8.04 : (Investments in related parties + related party receivables) / total assets

10 1 21 32 3.4 2

8.05 : (Investments by related parties + due to related parties) / total assets

3 1 27 31 1.2 5

8.06 : (Revenues from related parties + expenditures to related parties) / (total revenues + total expenditures)

0 0 31 31 ‐ 8

8.07 : Group (gross written premium + paid claims) / total (gross written premium + paid claims)

1 1 29 31 0.6 7

8.08 : Related party (gross written premium + paid claims) / total (gross written premium + paid claims)

2 1 28 31 0.9 6





(1) (2) (3) (4) (5) Total Index Rank

8.01 : Group debtors / total assets 4 0 1 21 5 31 6.2 4

8.02 : Related party receivables / total assets 13 0 2 13 4 32 7.2 1

8.03 : Due to related parties / total assets 9 0 2 14 6 31 6.4 3


12 0 2 13 5 32 6.9 2


5 0 2 18 6 31 6.0 5


1 0 1 22 7 31 5.5 7


1 0 1 22 7 31 5.5 7


3 0 1 20 7 31 5.6 6






8.01 : Group debtors / total assets 27 0 1 1 29 9.3 3

8.02 : Related party receivables / total assets 29 0 1 1 31 9.4 1

8.03 : Due to related parties / total assets 25 0 2 3 30 8.3 8


29 0 1 1 31 9.4 1


27 0 1 1 29 9.3 3


27 0 1 1 29 9.3 3


27 0 1 1 29 9.3 3


27 1 1 1 30 9.0 7






8.01 : Group debtors / total assets 28 0 1 29 9.7 2

8.02 : Related party receivables / total assets 29 0 1 30 9.7 2

8.03 : Due to related parties / total assets 28 0 1 29 9.7 2


29 0 0 29 10.0 1


28 0 1 29 9.7 2


28 0 1 29 9.7 2


28 0 1 29 9.7 2


28 1 1 30 9.3 8





(1) (2) (3) (4) (5) (6) Total Index Rank

8.01 : Group debtors / total assets 0 1 0 11 2 15 29 4.6 4

8.02 : Related party receivables / total assets 1 4 1 10 2 13 31 5.9 1

8.03 : Due to related parties / total assets 0 2 2 7 2 16 29 5.3 2


1 2 2 11 3 12 31 5.2 3


0 1 1 10 3 15 30 4.5 5


0 0 1 10 2 16 29 4.4 6


0 0 0 10 3 16 29 3.8 8


0 1 0 11 3 14 29 4.3 7





8.01 : Group debtors / total assets 0 0 0 0




8.02 : Related party receivables / total assets 0 1 0 0




8.03 : Due to related parties / total assets 0 1 0 1





1 3 1 2

Lowest 0 0 0 0

Average 0 12 0 5

Highest 0 25 0 10

8.05 : (Investments by related parties + due to related parties) / total assets 0 0 0 0





0 0 0 0





0 0 0 0





0 0 0 0




9. Industry‐wide





9.01 : Assets / total financial system assets [FSI] 14 1 18 33 4.5 4

9.02 : Assets / gross domestic product [FSI] 11 0 21 32 3.4 6

9.03 : Penetration 24 1 8 33 7.5 1

9.04 : Density 19 1 13 33 6.0 2

9.05 : Density ‐ in USD 10 2 20 32 3.6 5

9.06 : Concentration ratio 16 2 15 33 5.3 3

9.07 : Herfindahl‐Hirschman Index 5 1 26 32 1.8 7

9.08 : Assets lost during the previous 5 years / average assets 0 0 32 32 ‐ 8





(1) (2) (3) (4) (5) Total Index Rank

9.01 : Assets / total financial system assets [FSI] 14 1 0 11 6 32 6.8 4

9.02 : Assets / gross domestic product [FSI] 11 1 2 13 5 32 6.7 5

9.03 : Penetration 21 3 1 4 3 32 7.8 1

9.04 : Density 17 2 0 9 4 32 7.4 2

9.05 : Density ‐ in USD 11 0 0 9 10 30 5.8 6

9.06 : Concentration ratio 16 1 1 9 5 32 7.2 3

9.07 : Herfindahl‐Hirschman Index 5 1 2 16 8 32 5.4 7

9.08 : Assets lost during the previous 5 years / average assets

0 0 0 20 12 32 4.4 8






9.01 : Assets / total financial system assets [FSI] 28 0 1 2 31 9.0 3

9.02 : Assets / gross domestic product [FSI] 28 0 2 2 32 8.8 4

9.03 : Penetration 27 0 2 2 31 8.7 5

9.04 : Density 27 0 1 1 29 9.3 1

9.05 : Density ‐ in USD 28 0 1 1 30 9.3 1

9.06 : Concentration ratio 26 0 3 2 31 8.4 6

9.07 : Herfindahl‐Hirschman Index 26 1 3 3 33 7.9 7


28 0 1 27 56 5.0 8






9.01 : Assets / total financial system assets [FSI] 28 0 1 29 9.7 4

9.02 : Assets / gross domestic product [FSI] 27 0 0 27 10.0 1

9.03 : Penetration 28 0 1 29 9.7 4

9.04 : Density 28 0 1 29 9.7 4

9.05 : Density ‐ in USD 27 0 1 28 9.6 7

9.06 : Concentration ratio 29 0 0 29 10.0 1

9.07 : Herfindahl‐Hirschman Index 27 0 0 27 10.0 1


25 2 1 28 8.9 8





(1) (2) (3) (4) (5) (6) Total Index Rank

9.01 : Assets / total financial system assets [FSI]

1 3 0 14 4 10 32 5.0 3

9.02 : Assets / gross domestic product [FSI] 1 2 0 14 4 10 31 4.8 4

9.03 : Penetration 1 5 2 13 6 4 31 5.1 2

9.04 : Density 0 3 2 15 6 5 31 4.6 6

9.05 : Density ‐ in USD 0 2 1 13 4 10 30 4.6 6

9.06 : Concentration ratio 1 3 3 14 4 6 31 5.2 1

9.07 : Herfindahl‐Hirschman Index 0 1 2 12 3 12 30 4.7 5


0 0 0 10 4 16 30 3.6 8





9.01 : Assets / total financial system assets [FSI] 0 0 0 0




9.02 : Assets / gross domestic product [FSI] 0 1 0 1




9.03 : Penetration 0 0 0 0




9.04 : Density 0 0 0 0




9.05 : Density ‐ in USD 0 0 0 0




9.06 : Concentration ratio 0 0 0 0




9.07 : Herfindahl‐Hirschman Index 0 0 0 0




9.08 : Assets lost during the previous 5 years / average assets 0 0 0 0




Notes:

9.02: Assets / gross domestic product [FSI]: Benchmark (included in table) is for the total of non‐life and

life insurance.

Annex 3 Detailed Results by Topic

A. Use of FHSIs

A. Does YOUR AUTHORITY use the following FHSIs?



Response: (1) (2) (3) Total Index Category Rank

Overall Rank

1.01 : Gross written premium / capital 13 1 18 32 4.3 6 37

1.02 : Net written premium / capital 17 0 15 32 5.3 5 26

1.03 : Capital / total assets 15 4 13 32 5.7 4 25

1.04 : Capital / invested assets [FSI] 6 1 24 31 2.2 10 71

1.05 : Capital / technical provisions 10 4 18 32 4.1 7 41

1.06 : Cover of solvency margin 27 1 4 32 8.7 1 6

1.07 : Risk‐based capital adequacy ratios 20 1 11 32 6.5 3 20

1.08 : Growth in capital 26 2 4 32 8.6 2 8

1.09 : Net growth in capital 10 2 20 32 3.6 8 47

1.10 : Statutory deposit / required deposit 11 0 21 32 3.4 9 50


7 0 24 31 2.3 12 68

2.02 : Real estate / total assets 17 2 13 32 5.8 2 24

2.03 : Real estate / capital 5 0 26 31 1.6 17 81

2.04 : (Real estate + mortgages) / total assets 4 2 25 31 1.8 16 76

2.05 : Maximum deposits in a single bank / total assets 9 1 21 31 3.2 9 53

2.06 : (Cash + loans + investments) / total assets 12 3 17 32 4.5 4 32


8 1 23 32 2.8 11 62

2.08 : Receivables / capital 9 0 22 31 2.9 10 57


6 1 24 31 2.2 14 71

2.10 : Receivables over 90 days / total receivables 12 3 17 32 4.5 4 32

2.11 : Equities / total assets 16 0 14 30 5.3 3 26

2.12 : Non‐performing loans / total gross loans 7 0 23 30 2.3 12 68


12 1 18 31 4.1 8 41


6 1 24 31 2.2 14 71

2.15 : Gross asset position in financial derivatives / capital 3 0 27 30 1 18 87

2.16 : Gross liability position in financial derivatives / capital 2 0 28 30 0.7 19 90

2.17 : Investments: distribution by type 22 1 8 31 7.4 1 15

2.18 : Investments: geographical distribution 13 0 17 30 4.3 6 37

2.19 : Investments: sectoral distribution 13 0 17 30 4.3 6 37

3.01 : Risk retention ratio [FSI] 29 0 3 32 9.1 1 4


7 3 22 32 2.9 3 57

3.03 : Maximum exposure to single risk / capital 9 1 22 32 3.1 2 54

3.04 : Maximum exposure to single event / capital 6 1 25 32 2.1 4 74


5 1 26 32 1.8 5 76


4 5 23 32 2.5 7 65





Overall Rank


4 3 25 32 2 8 75

4.03 : Net claims provisions / capital 7 3 22 32 2.9 6 57

4.04 : Claims development 16 4 11 31 6.2 2 21

4.05 : Underwritten business: distribution by class of business 22 4 6 32 7.9 1 11

4.06 : Underwritten business: geographical distribution 12 1 19 32 4 4 43

4.07 : Underwritten business: sectoral distribution 4 0 28 32 1.3 9 84

4.08 : Actuarial assumption: short‐term interest rate 12 0 20 32 3.8 5 45

4.09 : Actuarial assumption: long‐term interest rate 14 0 18 32 4.4 3 35

5.01 : Gross written premium per employee 5 1 27 33 1.8 10 76

5.02 : Assets per employee 4 1 28 33 1.5 11 82

5.03 : Operating expenses / gross written premium 20 6 6 32 7.8 4 12

5.04 : Personnel expenses / gross written premium 7 4 22 33 3.1 7 54

5.05 : Growth in gross written premium 29 1 3 33 9 1 5

5.06 : Growth in net written premium 26 2 5 33 8.4 2 9

5.07 : Growth in total assets 27 1 5 33 8.4 2 9

5.08 : Gross written premium / sum insured 4 0 29 33 1.2 12 85

5.09 : Gross written premium / number of policies 8 2 23 33 2.9 8 57

5.10 : Complaint index 7 3 23 33 2.8 9 62

5.11 : Pay‐out ratio 11 4 18 33 4.3 6 37

5.12 : Board composition 16 2 15 33 5.3 5 26

6.01 : Claims ratio 28 3 1 32 9.5 1 1

6.02 : Gross claims ratio 23 2 7 32 7.7 5 13

6.03 : Expense ratio 28 3 2 33 9.2 2 2

6.04 : Combined ratio [FSI Non‐Life] 28 3 2 33 9.2 2 2

6.05 : Investment income ratio 20 3 10 33 6.8 6 17

6.06 : Operating ratio 14 4 15 33 5.2 9 30

6.07 : Profitability ratio 19 4 10 33 6.7 8 19

6.08 : Return on revenue 9 1 23 33 3 12 56

6.09 : Revisions to technical provisions / technical provisions 6 2 25 33 2.3 15 68

6.10 : Nominal net investment yield 9 4 19 32 3.8 11 45

6.11 : Real net investment yield 3 3 26 32 1.7 16 80

6.12 : Return on equity (ROE) [FSI] 28 1 4 33 8.7 4 6

6.13 : Earnings per employee 3 0 29 32 0.9 17 88

6.14 : Return on assets (ROA) [FSI Life] 21 2 10 33 6.8 6 17


12 3 18 33 4.4 10 35

6.16 : Market value / book value 7 2 24 33 2.6 13 64

6.17 : Price / earnings ratio 6 3 24 33 2.5 14 65

6.18 : Price / gross written premium 2 0 31 33 0.6 18 91

7.01 : Liquid assets / current liabilities 19 1 12 32 6.2 2 21

7.02 : Liquid assets / total liabilities 15 1 16 32 4.9 3 31

7.03 : Liquid assets / total assets 20 2 9 31 7 1 16

7.04 : Liquid liabilities / total liabilities 9 0 22 31 2.9 5 57

7.05 : Net open foreign exchange position / capital 0 1 30 31 0.3 6 93

7.06 : Duration of assets / duration of liabilities 8 4 20 32 3.5 4 49

8.01 : Group debtors / total assets 3 2 26 31 1.5 4 82

8.02 : Related party receivables / total assets 10 3 19 32 3.9 1 44

8.03 : Due to related parties / total assets 6 2 22 30 2.5 3 65


10 1 21 32 3.4 2 50


3 1 27 31 1.2 5 85


0 0 31 31 0 8 94





Overall Rank


1 1 29 31 0.6 7 91


2 1 28 31 0.9 6 88

9.01 : Assets / total financial system assets [FSI] 14 1 18 33 4.5 4 32

9.02 : Assets / gross domestic product [FSI] 11 0 21 32 3.4 6 50

9.03 : Penetration 24 1 8 33 7.5 1 14

9.04 : Density 19 1 13 33 6 2 23

9.05 : Density ‐ in USD 10 2 20 32 3.6 5 47

9.06 : Concentration ratio 16 2 15 33 5.3 3 26

9.07 : Herfindahl‐Hirschman Index 5 1 26 32 1.8 7 76

9.08 : Assets lost during the previous 5 years / average assets 0 0 32 32 0 8 94

1124 156 1755 3035 Average Index

Distribution of Responses 37% 5% 58% 100% 4.1

B. Usefulness of FHSIs

B. What are the views of YOUR AUTHORITY about the usefulness of the following FHSIs (or arithmetic transformations of them)?



Response: (1) (2) (3) (4) (5) Total Index Category Rank

Overall Rank

1.01 : Gross written premium / capital 13 0 4 10 4 31 7.1 7 49

1.02 : Net written premium / capital 17 0 1 9 4 31 7.7 5 27

1.03 : Capital / total assets 18 0 2 11 0 31 8.6 3 15

1.04 : Capital / invested assets [FSI] 6 0 5 14 6 31 5.9 9 75

1.05 : Capital / technical provisions 11 0 4 14 2 31 7.4 6 38

1.06 : Cover of solvency margin 28 0 0 2 1 31 9.5 1 2

1.07 : Risk‐based capital adequacy ratios 20 1 1 7 2 31 8.3 4 18

1.08 : Growth in capital 28 0 0 2 1 31 9.5 1 2

1.09 : Net growth in capital 12 0 4 11 4 31 7 8 53

1.10 : Statutory deposit / required deposit 9 1 1 5 15 31 4.3 10 94


7 0 3 14 7 31 5.9 14 75

2.02 : Real estate / total assets 19 0 1 7 4 31 7.9 3 25

2.03 : Real estate / capital 5 0 2 16 8 31 5.5 16 82

2.04 : (Real estate + mortgages) / total assets 6 0 4 16 5 31 6.2 12 68


9 0 3 16 4 32 6.8 9 56

2.06 : (Cash + loans + investments) / total assets 13 0 3 11 5 32 6.9 8 54


9 0 1 14 8 32 6 13 73

2.08 : Receivables / capital 8 0 2 18 4 32 6.8 9 56


6 0 1 16 8 31 5.7 15 80

2.10 : Receivables over 90 days / total receivables 14 0 2 11 5 32 7.1 7 49

2.11 : Equities / total assets 18 0 1 10 2 31 8.2 2 21

2.12 : Non‐performing loans / total gross loans 7 0 0 15 10 32 5.5 16 82


12 0 3 15 2 32 7.5 4 32


6 0 2 21 3 32 6.8 9 56


3 0 2 14 12 31 4.5 19 92


2 0 2 16 11 31 4.6 18 90

2.17 : Investments: distribution by type 24 0 0 7 1 32 9 1 10

2.18 : Investments: geographical distribution 14 0 2 12 3 31 7.5 4 32

2.19 : Investments: sectoral distribution 14 0 1 11 5 31 7.2 6 44

3.01 : Risk retention ratio 29 1 0 2 0 32 9.6 1 1


9 0 1 19 1 30 7.6 2 30

3.03 : Maximum exposure to single risk / capital 9 0 0 22 1 32 7.6 2 30

3.04 : Maximum exposure to single event / capital 7 0 0 23 1 31 7.5 4 32


5 1 1 22 2 31 6.8 5 56


8 0 2 19 2 31 7.2 7 44


5 0 1 22 3 31 6.7 8 62





Overall Rank

4.03 : Net claims provisions / capital 10 0 3 18 1 32 7.5 4 32

4.04 : Claims development 20 0 1 10 0 31 8.9 2 13


26 0 0 4 1 31 9.3 1 8


13 0 0 17 1 31 8 3 24

4.07 : Underwritten business: sectoral distribution 6 0 0 19 6 31 6.2 9 68


12 0 0 15 4 31 7.3 6 41

4.09 : Actuarial assumption: long‐term interest rate 14 0 0 13 4 31 7.5 4 32

5.01 : Gross written premium per employee 7 0 0 13 11 31 5.2 11 89

5.02 : Assets per employee 5 0 0 12 14 31 4.3 12 94

5.03 : Operating expenses / gross written premium 21 0 2 5 3 31 8.2 4 21

5.04 : Personnel expenses / gross written premium 8 0 4 9 10 31 5.3 10 87

5.05 : Growth in gross written premium 28 0 1 2 1 32 9.3 1 8

5.06 : Growth in net written premium 24 0 4 2 2 32 8.6 3 15

5.07 : Growth in total assets 26 0 0 4 2 32 9 2 10

5.08 : Gross written premium / sum insured 4 0 0 20 7 31 5.8 9 78

5.09 : Gross written premium / number of policies 8 1 1 16 5 31 6.4 8 65

5.10 : Complaint index 7 1 2 17 4 31 6.5 7 64

5.11 : Pay‐out ratio 10 0 2 16 3 31 7.2 5 44

5.12 : Board composition 17 0 0 8 7 32 7.1 6 49

6.01 : Claims ratio 29 0 1 1 1 32 9.4 2 5

6.02 : Gross claims ratio 24 0 1 5 1 31 9 5 10

6.03 : Expense ratio 29 0 1 1 1 32 9.4 2 5

6.04 : Combined ratio [FSI Non‐Life] 29 0 1 1 1 32 9.4 2 5

6.05 : Investment income ratio 20 0 1 7 3 31 8.2 8 21

6.06 : Operating ratio 14 0 4 10 3 31 7.4 10 38

6.07 : Profitability ratio 20 0 3 7 2 32 8.3 7 18

6.08 : Return on revenue 11 0 2 15 3 31 7.3 11 41


8 0 1 18 4 31 6.8 13 56

6.10 : Nominal net investment yield 11 0 2 15 3 31 7.3 11 41

6.11 : Real net investment yield 4 0 2 20 5 31 6.1 16 72

6.12 : Return on equity (ROE) [FSI] 27 0 0 5 0 32 9.5 1 2

6.13 : Earnings per employee 3 0 0 16 12 31 4.6 18 90

6.14 : Return on assets (ROA) [FSI Life] 20 0 0 9 2 31 8.5 6 17


14 0 0 14 3 31 7.7 9 27

6.16 : Market value / book value 6 0 1 18 6 31 6.2 15 68

6.17 : Price / earnings ratio 7 0 1 17 6 31 6.3 14 67

6.18 : Price / gross written premium 3 0 0 22 6 31 5.9 17 75

7.01 : Liquid assets / current liabilities 18 0 2 11 1 32 8.3 2 18

7.02 : Liquid assets / total liabilities 15 0 4 11 2 32 7.7 3 27

7.03 : Liquid assets / total assets 21 0 2 7 1 31 8.7 1 14

7.04 : Liquid liabilities / total liabilities 9 0 2 17 3 31 7.1 5 49

7.05 : Net open foreign exchange position / capital 0 0 4 20 6 30 5.3 6 87

7.06 : Duration of assets / duration of liabilities 11 0 1 18 2 32 7.5 4 32

8.01 : Group debtors / total assets 4 0 1 21 5 31 6.2 4 68

8.02 : Related party receivables / total assets 13 0 2 13 4 32 7.2 1 44

8.03 : Due to related parties / total assets 9 0 2 14 6 31 6.4 3 65


12 0 2 13 5 32 6.9 2 54





Overall Rank


5 0 2 18 6 31 6 5 73


1 0 1 22 7 31 5.5 7 82


1 0 1 22 7 31 5.5 7 82


3 0 1 20 7 31 5.6 6 81

9.01 : Assets / total financial system assets [FSI] 14 1 0 11 6 32 6.8 4 56

9.02 : Assets / gross domestic product [FSI] 11 1 2 13 5 32 6.7 5 62

9.03 : Penetration 21 3 1 4 3 32 7.8 1 26

9.04 : Density 17 2 0 9 4 32 7.4 2 38

9.05 : Density ‐ in USD 11 0 0 9 10 30 5.8 6 78

9.06 : Concentration ratio 16 1 1 9 5 32 7.2 3 44

9.07 : Herfindahl‐Hirschman Index 5 1 2 16 8 32 5.4 7 86


0 0 0 20 12 32 4.4 8 93

1192 15 136 1213 419 2975 Average Index

Distribution of Responses 40% 1% 5% 41% 14% 100% 7.1

C. Guidance on FHSIs

C. What are the views of YOUR AUTHORITY about the draft guidance that has been prepared for the following FHSIs?



Response: (1) (2) (3) (4) Total Index Category Rank

Overall Rank

1.01 : Gross written premium / capital 24 0 1 3 28 8.6 2 53

1.02 : Net written premium / capital 24 0 1 3 28 8.6 2 53

1.03 : Capital / total assets 24 0 1 4 29 8.3 4 67

1.04 : Capital / invested assets [FSI] 21 0 3 4 28 7.5 10 90

1.05 : Capital / technical provisions 23 0 1 5 29 7.9 7 79

1.06 : Cover of solvency margin 24 0 4 2 30 8 5 77

1.07 : Risk‐based capital adequacy ratios 22 0 4 2 28 7.9 7 79

1.08 : Growth in capital 25 0 1 2 28 8.9 1 39

1.09 : Net growth in capital 21 0 4 2 27 7.8 9 85

1.10 : Statutory deposit / required deposit 24 1 3 2 30 8 5 77


25 0 5 3 33 7.6 16 89

2.02 : Real estate / total assets 27 0 3 3 33 8.2 9 69

2.03 : Real estate / capital 26 0 3 4 33 7.9 13 79

2.04 : (Real estate + mortgages) / total assets 26 0 2 4 32 8.1 10 71

2.05 : Maximum deposits in a single bank / total assets 26 1 2 3 32 8.1 10 71

2.06 : (Cash + loans + investments) / total assets 28 0 2 3 33 8.5 3 57


24 1 3 4 32 7.5 17 90

2.08 : Receivables / capital 28 0 2 3 33 8.5 3 57


24 0 3 4 31 7.7 15 87

2.10 : Receivables over 90 days / total receivables 28 0 2 2 32 8.8 2 40

2.11 : Equities / total assets 27 0 1 2 30 9 1 26

2.12 : Non‐performing loans / total gross loans 25 0 2 4 31 8.1 10 71


26 0 2 3 31 8.4 5 59


26 0 2 3 31 8.4 5 59

2.15 : Gross asset position in financial derivatives / capital 23 0 2 6 31 7.4 18 92


23 0 2 6 31 7.4 18 92

2.17 : Investments: distribution by type 26 0 3 2 31 8.4 5 59

2.18 : Investments: geographical distribution 27 0 3 2 32 8.4 5 59

2.19 : Investments: sectoral distribution 27 2 3 2 34 7.9 13 79

3.01 : Risk retention ratio 30 0 0 0 30 10 1 1


27 0 0 1 28 9.6 2 2

3.03 : Maximum exposure to single risk / capital 27 0 3 1 31 8.7 4 42

3.04 : Maximum exposure to single event / capital 27 0 2 0 29 9.3 3 10


27 2 1 1 31 8.7 4 42


25 0 2 4 31 8.1 6 71


25 1 2 3 31 8.1 6 71

4.03 : Net claims provisions / capital 26 0 2 3 31 8.4 5 59

4.04 : Claims development 27 0 0 2 29 9.3 1 10





Overall Rank


27 0 0 2 29 9.3 1 10

4.06 : Underwritten business: geographical distribution 24 0 1 3 28 8.6 3 53

4.07 : Underwritten business: sectoral distribution 24 1 1 2 28 8.6 3 53

4.08 : Actuarial assumption: short‐term interest rate 25 0 3 3 31 8.1 6 71

4.09 : Actuarial assumption: long‐term interest rate 25 1 3 3 32 7.8 9 85

5.01 : Gross written premium per employee 26 0 1 3 30 8.7 8 42

5.02 : Assets per employee 26 0 1 3 30 8.7 8 42

5.03 : Operating expenses / gross written premium 26 0 2 2 30 8.7 8 42

5.04 : Personnel expenses / gross written premium 26 0 1 2 29 9 3 26

5.05 : Growth in gross written premium 29 0 1 1 31 9.4 1 3

5.06 : Growth in net written premium 29 0 1 1 31 9.4 1 3

5.07 : Growth in total assets 28 0 1 2 31 9 3 26

5.08 : Gross written premium / sum insured 26 0 1 3 30 8.7 8 42

5.09 : Gross written premium / number of policies 27 0 1 2 30 9 3 26

5.10 : Complaint index 27 0 2 1 30 9 3 26

5.11 : Pay‐out ratio 26 0 2 1 29 9 3 26

5.12 : Board composition 24 1 3 3 31 7.7 12 87

6.01 : Claims ratio 28 0 1 2 31 9 7 26

6.02 : Gross claims ratio 26 0 1 3 30 8.7 12 42

6.03 : Expense ratio 28 0 1 2 31 9 7 26

6.04 : Combined ratio [FSI Non‐Life] 29 0 1 1 31 9.4 1 3

6.05 : Investment income ratio 26 0 2 2 30 8.7 12 42

6.06 : Operating ratio 26 0 2 2 30 8.7 12 42

6.07 : Profitability ratio 29 0 1 1 31 9.4 1 3

6.08 : Return on revenue 26 0 1 3 30 8.7 12 42


23 0 5 3 31 7.4 18 92

6.10 : Nominal net investment yield 26 0 1 2 29 9 7 26

6.11 : Real net investment yield 26 0 1 2 29 9 7 26

6.12 : Return on equity (ROE) [FSI] 28 0 1 1 30 9.3 3 10

6.13 : Earnings per employee 27 0 1 1 29 9.3 3 10

6.14 : Return on assets (ROA) [FSI Life] 28 0 1 1 30 9.3 3 10


28 0 1 1 30 9.3 3 10

6.16 : Market value / book value 27 0 2 1 30 9 7 26

6.17 : Price / earnings ratio 26 0 3 2 31 8.4 16 59

6.18 : Price / gross written premium 26 1 3 3 33 7.9 17 79

7.01 : Liquid assets / current liabilities 28 0 1 1 30 9.3 2 10

7.02 : Liquid assets / total liabilities 29 0 1 1 31 9.4 1 3

7.03 : Liquid assets / total assets 27 0 1 1 29 9.3 2 10

7.04 : Liquid liabilities / total liabilities 27 0 1 1 29 9.3 2 10

7.05 : Net open foreign exchange position / capital 26 0 3 2 31 8.4 5 59

7.06 : Duration of assets / duration of liabilities 27 1 3 2 33 8.2 6 69

8.01 : Group debtors / total assets 27 0 1 1 29 9.3 3 10

8.02 : Related party receivables / total assets 29 0 1 1 31 9.4 1 3

8.03 : Due to related parties / total assets 25 0 2 3 30 8.3 8 67


29 0 1 1 31 9.4 1 3


27 0 1 1 29 9.3 3 10


27 0 1 1 29 9.3 3 10


27 0 1 1 29 9.3 3 10





Overall Rank


27 1 1 1 30 9 7 26

9.01 : Assets / total financial system assets [FSI] 28 0 1 2 31 9 3 26

9.02 : Assets / gross domestic product [FSI] 28 0 2 2 32 8.8 4 40

9.03 : Penetration 27 0 2 2 31 8.7 5 42

9.04 : Density 27 0 1 1 29 9.3 1 10

9.05 : Density ‐ in USD 28 0 1 1 30 9.3 1 10

9.06 : Concentration ratio 26 0 3 2 31 8.4 6 59

9.07 : Herfindahl‐Hirschman Index 26 1 3 3 33 7.9 7 79


28 0 1 27 56 5 8 95

2493 15 169 235 2912 Average Index

Distribution of Responses 86% 1% 6% 8% 100% 8.6

D. Mapping of FHSIs

D. What are the views of YOUR AUTHORITY about the draft mapping to risk‐assessment categories that has been prepared for the following FHSIs?




Overall Rank

1.01 : Gross written premium / capital 26 0 0 26 10 1 1

1.02 : Net written premium / capital 25 0 1 26 9.6 5 49

1.03 : Capital / total assets 27 0 0 27 10 1 1

1.04 : Capital / invested assets [FSI] 25 0 1 26 9.6 5 49

1.05 : Capital / technical provisions 25 0 1 26 9.6 5 49

1.06 : Cover of solvency margin 26 0 1 27 9.6 5 49

1.07 : Risk‐based capital adequacy ratios 27 0 1 28 9.6 5 49

1.08 : Growth in capital 26 0 0 26 10 1 1

1.09 : Net growth in capital 26 0 0 26 10 1 1

1.10 : Statutory deposit / required deposit 27 2 1 30 9 10 80


27 0 1 28 9.6 11 49

2.02 : Real estate / total assets 28 0 0 28 10 1 1

2.03 : Real estate / capital 28 0 0 28 10 1 1

2.04 : (Real estate + mortgages) / total assets 28 0 0 28 10 1 1

2.05 : Maximum deposits in a single bank / total assets 27 1 0 28 9.6 11 49

2.06 : (Cash + loans + investments) / total assets 26 0 2 28 9.3 16 65


27 0 1 28 9.6 11 49

2.08 : Receivables / capital 29 0 0 29 10 1 1


26 1 1 28 9.3 16 65

2.10 : Receivables over 90 days / total receivables 29 0 0 29 10 1 1

2.11 : Equities / total assets 27 0 1 28 9.6 11 49

2.12 : Non‐performing loans / total gross loans 27 1 0 28 9.6 11 49


28 0 0 28 10 1 1


28 0 0 28 10 1 1

2.15 : Gross asset position in financial derivatives / capital 28 0 0 28 10 1 1

2.16 : Gross liability position in financial derivatives / capital 28 0 0 28 10 1 1

2.17 : Investments: distribution by type 29 0 0 29 10 1 1

2.18 : Investments: geographical distribution 27 1 1 29 9.3 16 65

2.19 : Investments: sectoral distribution 26 3 2 31 8.4 19 94

3.01 : Risk retention ratio 28 1 0 29 9.7 4 30


28 0 0 28 10 1 1

3.03 : Maximum exposure to single risk / capital 29 0 0 29 10 1 1

3.04 : Maximum exposure to single event / capital 28 0 0 28 10 1 1


28 1 2 31 9 5 80


27 0 0 27 10 1 1


26 0 1 27 9.6 2 49

4.03 : Net claims provisions / capital 26 0 1 27 9.6 2 49

4.04 : Claims development 25 0 3 28 8.9 7 89

4.05 : Underwritten business: distribution by class of business 28 0 2 30 9.3 5 65

4.06 : Underwritten business: geographical distribution 26 0 2 28 9.3 5 65





Overall Rank

4.07 : Underwritten business: sectoral distribution 27 0 1 28 9.6 2 49

4.08 : Actuarial assumption: short‐term interest rate 24 0 3 27 8.9 7 89

4.09 : Actuarial assumption: long‐term interest rate 24 1 4 29 8.3 9 95

5.01 : Gross written premium per employee 28 0 1 29 9.7 2 30

5.02 : Assets per employee 28 0 0 28 10 1 1

5.03 : Operating expenses / gross written premium 28 0 2 30 9.3 6 65

5.04 : Personnel expenses / gross written premium 27 0 2 29 9.3 6 65

5.05 : Growth in gross written premium 28 0 2 30 9.3 6 65

5.06 : Growth in net written premium 28 0 2 30 9.3 6 65

5.07 : Growth in total assets 28 0 2 30 9.3 6 65

5.08 : Gross written premium / sum insured 27 0 2 29 9.3 6 65

5.09 : Gross written premium / number of policies 28 0 1 29 9.7 2 30

5.10 : Complaint index 28 0 2 30 9.3 6 65

5.11 : Pay‐out ratio 28 0 1 29 9.7 2 30

5.12 : Board composition 29 1 1 31 9.4 5 63

6.01 : Claims ratio 29 0 1 30 9.7 6 30

6.02 : Gross claims ratio 28 0 1 29 9.7 6 30

6.03 : Expense ratio 26 0 3 29 9 13 80

6.04 : Combined ratio [FSI Non‐Life] 27 0 3 30 9 13 80

6.05 : Investment income ratio 28 0 1 29 9.7 6 30

6.06 : Operating ratio 26 0 3 29 9 13 80

6.07 : Profitability ratio 27 0 3 30 9 13 80

6.08 : Return on revenue 26 0 3 29 9 13 80

6.09 : Revisions to technical provisions / technical provisions 27 0 2 29 9.3 12 65

6.10 : Nominal net investment yield 28 0 0 28 10 1 1

6.11 : Real net investment yield 28 0 0 28 10 1 1

6.12 : Return on equity (ROE) [FSI] 29 0 0 29 10 1 1

6.13 : Earnings per employee 28 0 0 28 10 1 1

6.14 : Return on assets (ROA) [FSI Life] 29 0 0 29 10 1 1


28 0 1 29 9.7 6 30

6.16 : Market value / book value 28 0 1 29 9.7 6 30

6.17 : Price / earnings ratio 28 0 1 29 9.7 6 30

6.18 : Price / gross written premium 28 1 3 32 8.8 18 92

7.01 : Liquid assets / current liabilities 27 0 3 30 9 4 80

7.02 : Liquid assets / total liabilities 27 0 3 30 9 4 80

7.03 : Liquid assets / total assets 25 0 4 29 8.6 6 93

7.04 : Liquid liabilities / total liabilities 27 0 2 29 9.3 3 65

7.05 : Net open foreign exchange position / capital 28 0 0 28 10 1 1

7.06 : Duration of assets / duration of liabilities 29 1 1 31 9.4 2 63

8.01 : Group debtors / total assets 28 0 1 29 9.7 2 30

8.02 : Related party receivables / total assets 29 0 1 30 9.7 2 30

8.03 : Due to related parties / total assets 28 0 1 29 9.7 2 30


29 0 0 29 10 1 1


28 0 1 29 9.7 2 30


28 0 1 29 9.7 2 30


28 0 1 29 9.7 2 30


28 1 1 30 9.3 8 65

9.01 : Assets / total financial system assets [FSI] 28 0 1 29 9.7 4 30

9.02 : Assets / gross domestic product [FSI] 27 0 0 27 10 1 1





Overall Rank

9.03 : Penetration 28 0 1 29 9.7 4 30

9.04 : Density 28 0 1 29 9.7 4 30

9.05 : Density ‐ in USD 27 0 1 28 9.6 7 49

9.06 : Concentration ratio 29 0 0 29 10 1 1

9.07 : Herfindahl‐Hirschman Index 27 0 0 27 10 1 1

9.08 : Assets lost during the previous 5 years / average assets 25 2 1 28 8.9 8 89

2598 18 103 2719 Average Index

Distribution of Responses 96% 1% 4% 100% 9.6

E. Use of Benchmarks

E. Which the following best describes the use of supervisory benchmarks by YOUR AUTHORITY for the following FHSIs (or arithmetic transformations of them)?


Weights for index: 10 10 7 5 0 Omit

Response: (1) (2) (3) (4) (5) (6) Total Index Category Rank

Overall Rank

1.01 : Gross written premium / capital 2 6 2 5 2 14 31 7 7 17

1.02 : Net written premium / capital 3 6 4 6 1 11 31 7.4 4 6

1.03 : Capital / total assets 3 6 2 9 1 9 30 7.1 5 13

1.04 : Capital / invested assets [FSI] 3 3 1 5 1 18 31 7.1 5 13

1.05 : Capital / technical provisions 2 5 3 4 4 13 31 6.2 10 38

1.06 : Cover of solvency margin 17 6 1 3 1 3 31 9 1 1

1.07 : Risk‐based capital adequacy ratios 14 3 1 3 1 8 30 8.7 2 2

1.08 : Growth in capital 3 8 4 11 2 3 31 6.9 8 20

1.09 : Net growth in capital 2 3 2 6 2 15 30 6.3 9 31

1.10 : Statutory deposit / required deposit 6 3 1 2 1 18 31 8.2 3 3


1 5 0 7 0 16 29 7.3 2 8

2.02 : Real estate / total assets 3 6 2 11 2 5 29 6.6 10 25

2.03 : Real estate / capital 1 3 0 8 0 17 29 6.7 9 22

2.04 : (Real estate + mortgages) / total assets 1 4 1 7 0 16 29 7.1 6 13


3 5 0 7 1 13 29 7.2 4 10

2.06 : (Cash + loans + investments) / total assets

1 7 0 8 3 11 30 6.3 13 31


0 3 0 11 1 14 29 5.7 15 50

2.08 : Receivables / capital 3 4 1 9 0 14 31 7.2 4 10


0 2 0 10 1 16 29 5.4 17 58

2.10 : Receivables over 90 days / total receivables

3 6 0 8 0 13 30 7.6 1 4

2.11 : Equities / total assets 6 3 1 9 3 7 29 6.5 11 27

2.12 : Non‐performing loans / total gross loans

1 4 0 7 1 16 29 6.5 11 27


5 4 0 9 1 10 29 7.1 6 13


5 2 0 8 0 14 29 7.3 2 8


1 1 0 11 1 15 29 5.4 17 58


0 1 0 11 1 16 29 5 19 67

2.17 : Investments: distribution by type 6 5 2 10 2 5 30 7 8 17

2.18 : Investments: geographical distribution 4 3 0 14 3 6 30 5.8 14 47

2.19 : Investments: sectoral distribution 2 3 0 12 3 10 30 5.5 16 54

3.01 : Risk retention ratio 2 10 2 12 5 1 32 6.3 1 31


0 4 2 11 2 10 29 5.7 4 50

3.03 : Maximum exposure to single risk / capital

3 2 2 10 1 13 31 6.3 1 31





Overall Rank


3 0 2 9 2 14 30 5.6 5 53


4 1 1 10 1 13 30 6.3 1 31


1 3 1 14 1 11 31 5.9 2 44


0 2 0 16 1 12 31 5.3 6 60

4.03 : Net claims provisions / capital 0 4 1 15 1 11 32 5.8 4 47

4.04 : Claims development 2 4 1 15 4 5 31 5.5 5 54


3 0 1 15 8 4 31 4.1 7 86


0 0 0 13 7 11 31 3.3 9 95


0 0 0 12 5 14 31 3.5 8 92


4 2 1 10 3 11 31 5.9 2 44


5 3 1 9 3 10 31 6.3 1 31

5.01 : Gross written premium per employee 0 2 0 9 3 16 30 4.6 10 73

5.02 : Assets per employee 0 2 0 9 3 16 30 4.6 10 73


3 8 1 13 1 5 31 7 2 17


0 5 0 9 1 15 30 6.3 3 31

5.05 : Growth in gross written premium 3 9 3 10 6 1 32 6.2 4 38

5.06 : Growth in net written premium 2 8 4 8 6 4 32 6 5 41

5.07 : Growth in total assets 2 6 2 13 6 3 32 5.5 6 54

5.08 : Gross written premium / sum insured 0 0 1 10 2 17 30 4.4 12 82


1 1 1 12 3 12 30 4.8 9 70

5.10 : Complaint index 0 2 0 15 2 12 31 5 8 67

5.11 : Pay‐out ratio 1 2 1 14 3 9 30 5.1 7 64

5.12 : Board composition 5 4 2 8 1 12 32 7.2 1 10

6.01 : Claims ratio 4 9 4 11 4 0 32 6.7 3 22

6.02 : Gross claims ratio 2 10 1 11 4 2 30 6.5 6 27

6.03 : Expense ratio 5 9 3 11 4 0 32 6.8 2 21

6.04 : Combined ratio [FSI Non‐Life] 5 12 4 8 3 0 32 7.4 1 6

6.05 : Investment income ratio 3 5 3 11 4 6 32 6 8 41

6.06 : Operating ratio 2 6 2 8 5 7 30 5.8 9 47

6.07 : Profitability ratio 2 8 3 11 3 5 32 6.5 6 27

6.08 : Return on revenue 1 3 1 10 6 9 30 4.6 12 73


0 4 1 8 6 11 30 4.6 12 73

6.10 : Nominal net investment yield 0 5 1 13 5 6 30 5.1 11 64

6.11 : Real net investment yield 0 3 1 8 6 12 30 4.3 15 84

6.12 : Return on equity (ROE) [FSI] 3 10 5 10 4 0 32 6.7 3 22

6.13 : Earnings per employee 0 1 0 9 6 14 30 3.4 17 93

6.14 : Return on assets (ROA) [FSI Life] 2 9 1 12 3 4 31 6.6 5 25


1 6 1 12 4 7 31 5.7 10 50

6.16 : Market value / book value 0 2 0 9 7 12 30 3.6 16 90





Overall Rank

6.17 : Price / earnings ratio 0 3 1 9 5 12 30 4.6 12 73

6.18 : Price / gross written premium 0 0 1 8 5 16 30 3.4 17 93

7.01 : Liquid assets / current liabilities 4 8 1 9 1 8 31 7.5 1 5

7.02 : Liquid assets / total liabilities 2 4 1 12 2 10 31 6 3 41

7.03 : Liquid assets / total assets 1 6 3 14 2 5 31 6.2 2 38

7.04 : Liquid liabilities / total liabilities 0 3 1 9 2 15 30 5.5 4 54


0 0 0 10 3 17 30 3.8 6 88


1 2 0 13 7 8 31 4.1 5 86

8.01 : Group debtors / total assets 0 1 0 11 2 15 29 4.6 4 73

8.02 : Related party receivables / total assets 1 4 1 10 2 13 31 5.9 1 44

8.03 : Due to related parties / total assets 0 2 2 7 2 16 29 5.3 2 60


1 2 2 11 3 12 31 5.2 3 62


0 1 1 10 3 15 30 4.5 5 81


0 0 1 10 2 16 29 4.4 6 82


0 0 0 10 3 16 29 3.8 8 88


0 1 0 11 3 14 29 4.3 7 84


1 3 0 14 4 10 32 5 3 67

9.02 : Assets / gross domestic product [FSI] 1 2 0 14 4 10 31 4.8 4 70

9.03 : Penetration 1 5 2 13 6 4 31 5.1 2 64

9.04 : Density 0 3 2 15 6 5 31 4.6 6 73

9.05 : Density ‐ in USD 0 2 1 13 4 10 30 4.6 6 73

9.06 : Concentration ratio 1 3 3 14 4 6 31 5.2 1 62

9.07 : Herfindahl‐Hirschman Index 0 1 2 12 3 12 30 4.7 5 72


0 0 0 10 4 16 30 3.6 8 90

189 362 114 963 276 984 2888 Average Index

Distribution of Responses 7% 13% 4% 33% 10% 34% 100% 5.8

F. Benchmarks Used

F. If YOUR AUTHORITY has established benchmarks for the following FHSIs, what benchmarks are used for conventional insurance activities?

First row : number of quantitative responses 1. Minimum for non‐life insurance




1.01 : Gross written premium / capital 2 3 1 1

Lowest 100 400 100 900

Average 200 667 100 900

Highest 300 900 100 900

1.02 : Net written premium / capital 3 5 3 3

Lowest 0 300 0 300

Average 133 460 33 933

Highest 300 1000 100 2000

1.03 : Capital / total assets 1 0 0 0




1.04 : Capital / invested assets [FSI] 1 1 1 1

Lowest 70 100 30 100

Average 70 100 30 100

Highest 70 100 30 100

1.05 : Capital / technical provisions 3 2 1 1

Lowest 0 100 50 100

Average 50 175 50 100

Highest 100 250 50 100

1.06 : Cover of solvency margin 12 1 11 1

Lowest 100 150 100 200

Average 109 150 116 200

Highest 150 150 150 200

1.07 : Risk‐based capital adequacy ratios 7 1 6 1

Lowest 100 130 100 130

Average 126 130 122 130

Highest 200 130 150 130

1.08 : Growth in capital 4 2 3 1

Lowest 5 50 0 50

Average 11 50 10 50

Highest 20 50 20 50

1.09 : Net growth in capital 0 0 0 0




1.10 : Statutory deposit / required deposit 1 0 0 0





0 0 0 0




2.02 : Real estate / total assets 0 4 0 3




2.03 : Real estate / capital 0 0 0 0




2.04 : (Real estate + mortgages) / total assets 0 2 0 2

Lowest N/A 20 N/A 0









0 3 0 2

Lowest N/A 5 N/A 15



2.06 : (Cash + loans + investments) / total assets 1 0 1 0





0 0 0 0




2.08 : Receivables / capital 0 2 0 1





0 0 0 0




2.10 : Receivables over 90 days / total receivables 0 2 0 1

Lowest N/A 0 N/A 0



2.11 : Equities / total assets 0 4 0 3

Lowest N/A 20 N/A 5



2.12 : Non‐performing loans / total gross loans 0 1 0 1





0 4 0 3

Lowest N/A 5 N/A 5

Average N/A 8 N/A 8



0 1 0 1

Lowest N/A 5 N/A 5

Average N/A 5 N/A 5

Highest N/A 5 N/A 5


0 0 0 0





0 0 0 0




2.17 : Investments: distribution by type 1 2 1 2

Lowest 30 5 30 5






Average 30 28 30 28

Highest 30 50 30 50

2.18 : Investments: geographical distribution 2 2 1 2

Lowest 30 10 30 10

Average 33 30 30 30

Highest 35 50 30 50

2.19 : Investments: sectoral distribution 0 0 0 0




3.01 : Risk retention ratio 6 5 2 2

Lowest 20 70 40 80

Average 40 80 58 90

Highest 70 99.5 75 99


1 2 2 2

Lowest 90 30 5 25

Average 90 70 48 68

Highest 90 110 90 110

3.03 : Maximum exposure to single risk / capital 0 2 0 1

Lowest N/A 5 N/A 10



3.04 : Maximum exposure to single event / capital 0 2 0 1





1 3 2 3

Lowest 30 25 5 25

Average 30 48 18 33

Highest 30 70 30 50


1 1 1 1

Lowest 75 125 75 125

Average 75 125 75 125

Highest 75 125 75 125


0 0 0 0




4.03 : Net claims provisions / capital 0 2 0 0




4.04 : Claims development 1 1 0 0

Lowest 20 20 N/A N/A

Average 20 20 N/A N/A

Highest 20 20 N/A N/A


0 1 0 1

Lowest N/A 5 N/A 5

Average N/A 5 N/A 5

Highest N/A 5 N/A 5


0 0 0 0









4.07 : Underwritten business: sectoral distribution 0 0 0 0





0 0 0 0





0 0 0 0




5.01 : Gross written premium per employee 0 0 0 0




5.02 : Assets per employee 0 0 0 0




5.03 : Operating expenses / gross written premium 2 5 2 4

Lowest 25 30 25 30

Average 28 40 28 41

Highest 30 50 30 50

5.04 : Personnel expenses / gross written premium 0 2 0 2




5.05 : Growth in gross written premium 5 4 4 4

Lowest 1.5 25 5 15

Average 17 29 20 26

Highest 33 33 33 33

5.06 : Growth in net written premium 3 4 2 3

Lowest 33 25 0 30

Average 33 31 17 38

Highest 33 33 33 50

5.07 : Growth in total assets 1 0 2 1

Lowest 2 N/A 3 20

Average 2 N/A 3 20

Highest 2 N/A 3 20

5.08 : Gross written premium / sum insured 0 0 0 0




5.09 : Gross written premium / number of policies 0 0 0 0




5.10 : Complaint index 0 0 0 0




5.11 : Pay‐out ratio 0 0 0 0









5.12 : Board composition 4 0 4 0

Lowest 2 N/A 2 N/A



6.01 : Claims ratio 4 5 3 4

Lowest 30 60 20 50

Average 45 80 33 66

Highest 50 105 50 80

6.02 : Gross claims ratio 2 3 1 2

Lowest 50 75 20 50

Average 50 92 20 63

Highest 50 120 20 75

6.03 : Expense ratio 4 6 3 5

Lowest 10 30 15 30

Average 18 43 20 50

Highest 25 70 25 90

6.04 : Combined ratio [FSI Non‐Life] 5 9 4 6

Lowest 0 65 0 50

Average 59 96 54 92

Highest 85 109 85 109

6.05 : Investment income ratio 3 3 2 1

Lowest 2.5 10 3 10

Average 5 38 5 10

Highest 7 95 6 10

6.06 : Operating ratio 2 1 1 1

Lowest 20 100 80 100

Average 50 100 80 100

Highest 80 100 80 100

6.07 : Profitability ratio 3 0 2 0

Lowest 5 N/A 3 N/A

Average 9 N/A 4 N/A


6.08 : Return on revenue 0 0 0 0





0 0 0 0




6.10 : Nominal net investment yield 1 1 1 1

Lowest 2.5 7.5 3.5 12.5

Average 2.5 7.5 3.5 12.5

Highest 2.5 7.5 3.5 12.5

6.11 : Real net investment yield 0 0 0 0




6.12 : Return on equity (ROE) [FSI] 5 4 4 3

Lowest 0 15 0 15

Average 10 26 7 18

Highest 20 50 16 20

6.13 : Earnings per employee 0 0 0 0




6.14 : Return on assets (ROA) [FSI Life] 3 1 4 2

Lowest 1 10 0.5 3






Average 3 10 2 7.8

Highest 4 10 4 12.5


0 0 0 1

Lowest N/A N/A N/A 20

Average N/A N/A N/A 20

Highest N/A N/A N/A 20

6.16 : Market value / book value 0 0 0 0




6.17 : Price / earnings ratio 0 0 0 0




6.18 : Price / gross written premium 0 0 0 0




7.01 : Liquid assets / current liabilities 5 0 3 0




7.02 : Liquid assets / total liabilities 1 0 1 0




7.03 : Liquid assets / total assets 2 1 1 1

Lowest 10 95 30 60

Average 20 95 30 60

Highest 30 95 30 60

7.04 : Liquid liabilities / total liabilities 0 0 0 0




7.05 : Net open foreign exchange position / capital 0 0 0 0




7.06 : Duration of assets / duration of liabilities 0 0 0 0




8.01 : Group debtors / total assets 0 0 0 0




8.02 : Related party receivables / total assets 0 1 0 0




8.03 : Due to related parties / total assets 0 1 0 1





1 3 1 2

Lowest 0 0 0 0

Average 0 12 0 5






Highest 0 25 0 10


0 0 0 0





0 0 0 0





0 0 0 0





0 0 0 0




9.01 : Assets / total financial system assets [FSI] 0 0 0 0




9.02 : Assets / gross domestic product [FSI] 0 1 0 1




9.03 : Penetration 0 0 0 0




9.04 : Density 0 0 0 0




9.05 : Density ‐ in USD 0 0 0 0




9.06 : Concentration ratio 0 0 0 0




9.07 : Herfindahl‐Hirschman Index 0 0 0 0





0 0 0 0




Notes on benchmarks:

1.06: Cover of solvency margin: One supervisor reports benchmarks that differ by size. One supervisor

reports three levels of benchmarks (middle level included in table).

1.07: Risk‐based capital adequacy ratios: One supervisor reports three levels of benchmarks (middle level

included in table).

2.08: Receivables / capital: One supervisor sets a maximum benchmark of 10% for insurance‐related

receivables (included in table).

2.10: Receivables over 90 days / total receivables: One supervisor sets a maximum benchmark of 0%

after 30 days (included in table).

2.11: Equities / total assets: One supervisor sets maximum benchmarks for listed securities of 30% for

non‐life insurers (included in table) and for unlisted securities of 5% for life insurers (included in table).

2.13: Maximum investment in a single counterparty / total assets: One supervisor sets maximum

benchmarks for named counterparties of 20%, for listed counterparties of 10%, and for others of 5%

(latter is included in table).

2.17: Investments: distribution by type: Some supervisors set benchmarks that vary by type of

investment. Some supervisors benchmark against market average distributions (for example, in the

European Union).

2.18: Investments: geographical distribution: The supervisors that provided benchmarks did not specify

whether they related to local investments or foreign investments.

3.01: Risk retention ratio: One supervisor sets a maximum benchmark of 25% if only one reinsurer is

being used.

3.05: Maximum premium ceded to a single reinsurer / gross written premium: One supervisor sets a

lower maximum benchmark of 10% for reinsurers rated less than BBB, versus 25% for higher‐rated

reinsurers (included in table).

4.08: Actuarial assumption: short‐term interest rate: Some supervisors set maximum benchmarks that


coupon spot yield for matching durations.

4.09: Actuarial assumption: long‐term interest rate: Some supervisors set maximum benchmarks that


coupon spot yield for a 15‐year duration.

5.12: Board composition: Percentages shown in table are for independent directors. Several supervisors

set benchmarks for minimum number of directors (2, 5, or 7). One supervisor sets benchmarks for

maximum percentage of common directors and maximum number of executive directors.

6.05: Investment income ratio: One supervisor sets a maximum benchmark equal to the government 6‐

month treasury bill rate.

6.12: Return on equity (ROE) [FSI]: One supervisor sets a maximum benchmark equal to the industry

average for the previous year.

9.02: Assets / gross domestic product [FSI]: Benchmark (included in table) is for the total of non‐life and

life insurance.

Annex 4 Mapping of FHSIs

IMF 2003 CARAMELS Categories Risk‐Based Supervision Categories

Core

Non‐Life

Life

Capital

Assets

Reinsurance

Actuarial

Managem

ent

Earnings

Liquidity

Subsidiaries

Insurance

Credit

Market

Operational

Legal &

Reg

Conduct

Rep

utation

Concentration

Environmen

tal

Strategic

1.01 : Gross written premium / capital

X

1.02 : Net written premium / capital

X X X

1.03 : Capital / total assets

X X X X

1.04 : Capital / invested assets [FSI]

X X X X

1.05 : Capital / technical provisions

X X X

1.06 : Cover of solvency margin

X X X X X


X X X X X

1.08 : Growth in capital

X X X

1.09 : Net growth in capital

X X X


X X

1.11 : Capital in excess of minimum required / average annual loss

X X X


X X X X X X X X

2.02 : Real estate / total assets

X X X X X

2.03 : Real estate / capital

X X X X

2.04 : (Real estate + mortgages) / total assets

X X X X X


X X X X

2.06 : (Cash + loans + investments) / total assets

X X


X X X X X X

2.08 : Receivables / capital

X X X X X


X X

IMF 2003 CARAMELS Categories Risk‐Based Supervision Categories Core

Non‐Life

Life

Capital

Assets

Reinsurance

Actuarial

Managem

ent

Earnings

Liquidity

Subsidiaries

Insurance

Credit

Market

Operational

Legal &

Reg

Conduct

Rep

utation

Concentration

Environmen

tal

Strategic

2.10 : Receivables over 90 days / total receivables

X X X X

2.11 : Equities / total assets

X X X X X X X

2.12 : Non‐performing loans / total gross loans

X X X X X


X X X


X X X


X X X X X


X X X X X

2.17 : Investments: distribution by type

X X X X X X

2.18 : Investments: geographical distribution

X X X X X X X X

2.19 : Investments: sectoral distribution

X X X X X X X X

3.01 : Risk retention ratio

X X X X X X X X


X X X X

3.03 : Maximum exposure to single risk / capital

X X X


X X X


X X X X X


X X X X


X X X X

4.03 : Net claims provisions / capital

X X X


Non‐Life

Life

Capital

Assets

Reinsurance

Actuarial

Managem

ent

Earnings

Liquidity

Subsidiaries

Insurance

Credit

Market

Operational

Legal &

Reg

Conduct

Rep

utation

Concentration

Environmen

tal

Strategic

4.04 : Claims development

X X


X X X X X X X X


X X X X X X X X


X X X X X X X


X


X

5.01 : Gross written premium per employee

X X X X X X X X

5.02 : Assets per employee

X X X X X X X


X X X X X


X X X X X

5.05 : Growth in gross written premium

X X X X X

5.06 : Growth in net written premium

X X X X X

5.07 : Growth in total assets

X X X X X X X

5.08 : Gross written premium / sum insured

X X X X X


X X X X X

5.10 : Complaint index

X X X X

5.11 : Pay‐out ratio

X X X X X X

5.12 : Board composition

X X

6.01 : Claims ratio

X X X X X X

6.02 : Gross claims ratio

X X X X

6.03 : Expense ratio

X X X X X X X

6.04 : Combined ratio [FSI Non‐Life]

X X X X X X

6.05 : Investment income ratio

X X X

6.06 : Operating ratio

X

6.07 : Profitability ratio

X

6.08 : Return on revenue

X X


Non‐Life

Life

Capital

Assets

Reinsurance

Actuarial

Managem

ent

Earnings

Liquidity

Subsidiaries

Insurance

Credit

Market

Operational

Legal &

Reg

Conduct

Rep

utation

Concentration

Environmen

tal

Strategic


X X X X X

6.10 : Nominal net investment yield

X X X X X X X

6.11 : Real net investment yield

X X X X X

6.12 : Return on equity (ROE) [FSI]

X X X X

6.13 : Earnings per employee

X X X

6.14 : Return on assets (ROA) [FSI Life]

X X X


X X X X

6.16 : Market value / book value

X X X X X

6.17 : Price / earnings ratio

X X X X X

6.18 : Price / gross written premium

X X X X X

7.01 : Liquid assets / current liabilities

X X X X X

7.02 : Liquid assets / total liabilities

X X

7.03 : Liquid assets / total assets

X X X X

7.04 : Liquid liabilities / total liabilities

X X X


X X X X X X


X X X X X X

7.07 : Highest quality liquid assets / claims

X X

8.01 : Group debtors / total assets

X X X X X

8.02 : Related party receivables / total assets

X X X

8.03 : Due to related parties / total assets

X X


X X X X X X


X X X


Non‐Life

Life

Capital

Assets

Reinsurance

Actuarial

Managem

ent

Earnings

Liquidity

Subsidiaries

Insurance

Credit

Market

Operational

Legal &

Reg

Conduct

Rep

utation

Concentration

Environmen

tal

Strategic


X X X X X


X X X X X X X


X X X X X


X X X X X X X X

9.02 : Assets / gross domestic product [FSI]

X X X X X X X X

9.03 : Penetration

X X X X X X

9.04 : Density X X X X X X 9.05 : Density ‐ in USD

X X X X X X

9.06 : Concentration ratio

X X X X X X X

9.07 : Herfindahl‐Hirschman Index

X X X X X X X


X X X X X

9.09 : Inclusion

X X X X

Annex 5 Guidance on FHSIs

This guidance on the calculation and interpretation of financial health and stability indicators

(FHSIs) for insurance has been prepared as part of a project jointly sponsored by the

International Monetary Fund (IMF) and the World Bank Group (WBG). However, it is not an

official document of either organization.

The FHSIs have been organized in accordance with the CARAMELS categories to which they are

primarily related. Annex 4 provides a mapping of the FHSIs to other risk assessment categories

where they can be useful in informing the assessment.

Unless otherwise indicated, the results of FHSIs that are calculated as ratios are typically

expressed as percentages. When FHSIs involving items from the income statement are

calculated for periods of less than one year the results are typically annualized.

FHSIs denoted as [FSI] have been adopted by the IMF as Financial Soundness Indicators for the

insurance sector.

The calculation of FHSIs might differ among jurisdictions because of differences in financial

reporting standards. This might affect the terminology used, how various items are measured,

the level of the FHSI, and supervisory benchmarks. Supervisors should consider such differences

when making comparisons with other jurisdictions.

Detailed Table of Contents

1. CAPITAL ........................................................................................................................................................... 121 1.01 Gross written premium / capital .......................................................................................................... 121 1.02 Net written premium / capital ............................................................................................................. 121 1.03 Capital / total assets ............................................................................................................................ 122 1.04 Capital / invested assets [FSI] .............................................................................................................. 122 1.05 Capital / technical provisions ............................................................................................................... 123 1.06 Cover of solvency margin ..................................................................................................................... 123 1.07 Risk‐based capital adequacy ratios ...................................................................................................... 124 1.08 Growth in capital ................................................................................................................................. 125 1.09 Net growth in capital ........................................................................................................................... 126 1.10 Statutory deposit / required deposit .................................................................................................... 127 1.11 Capital in excess of minimum required / average annual loss ............................................................. 127

2. ASSETS ............................................................................................................................................................ 128 2.01 (Real estate + unquoted equities + receivables) / total assets ............................................................. 128 2.02 Real estate / total assets ..................................................................................................................... 129 2.03 Real estate / capital ............................................................................................................................. 129 2.04 (Real estate + mortgages) / total assets .............................................................................................. 129 2.05 Maximum deposits in a single bank / total assets ............................................................................... 130

2.06 (Cash + loans + investments) / total assets .......................................................................................... 130 2.07 Receivables / (gross written premium + reinsurance recoveries) ........................................................ 131 2.08 Receivables / capital ............................................................................................................................ 131 2.09 (Non‐performing investment assets and loans + receivables over 90 days) / total assets .................. 132 2.10 Receivables over 90 days / total receivables ....................................................................................... 133 2.11 Equities / total assets ........................................................................................................................... 133 2.12 Non‐performing loans / total gross loans ............................................................................................ 134 2.13 Maximum investment in a single counterparty / total assets ............................................................. 134 2.14 Maximum receivable from a single counterparty / total assets .......................................................... 135 2.15 Gross asset position in financial derivatives / capital .......................................................................... 135 2.16 Gross liability position in financial derivatives / capital ....................................................................... 136 2.17 Investments: distribution by type ........................................................................................................ 136 2.18 Investments: geographical distribution ............................................................................................... 137 2.19 Investments: sectoral distribution ....................................................................................................... 138

3. REINSURANCE ................................................................................................................................................... 138 3.01 Risk retention ratio .............................................................................................................................. 138 3.02 (Reinsurance recoveries + reinsurance commissions) / reinsurance ceded ......................................... 139 3.03 Maximum exposure to single risk / capital .......................................................................................... 140 3.04 Maximum exposure to single event / capital ....................................................................................... 140 3.05 Maximum premium ceded to a single reinsurer / gross written premium .......................................... 141

4. ACTUARIAL ....................................................................................................................................................... 141 4.01 Net claims provisions / average of net claims paid in last three years ................................................ 141 4.02 Net technical provisions / average of net written premium in last three years ................................... 143 4.03 Net claims provisions / capital ............................................................................................................. 144 4.04 Claims development ............................................................................................................................. 145 4.05 Underwritten business: distribution by class of business ..................................................................... 146 4.06 Underwritten business: geographical distribution ............................................................................... 147 4.07 Underwritten business: sectoral distribution ....................................................................................... 148 4.08 Actuarial assumption: short‐term interest rate ................................................................................... 148 4.09 Actuarial assumption: long‐term interest rate .................................................................................... 149

5. MANAGEMENT ................................................................................................................................................. 149 5.01 Gross written premium per employee ................................................................................................. 149 5.02 Assets per employee ............................................................................................................................ 150 5.03 Operating expenses / gross written premium...................................................................................... 151 5.04 Personnel expenses / gross written premium ...................................................................................... 151 5.05 Growth in gross written premium ........................................................................................................ 152 5.06 Growth in net written premium ........................................................................................................... 153 5.07 Growth in total assets .......................................................................................................................... 154 5.08 Gross written premium / sum insured ................................................................................................. 155 5.09 Gross written premium / number of policies ....................................................................................... 155 5.10 Complaint index ................................................................................................................................... 156 5.11 Pay‐out ratio ........................................................................................................................................ 156 5.12 Board composition ............................................................................................................................... 157

6. EARNINGS ........................................................................................................................................................ 157 6.01 Claims ratio .......................................................................................................................................... 157 6.02 Gross claims ratio ................................................................................................................................ 158 6.03 Expense ratio ....................................................................................................................................... 160 6.04 Combined ratio [FSI Non‐Life] .............................................................................................................. 161 6.05 Investment income ratio ...................................................................................................................... 161

6.06 Operating ratio .................................................................................................................................... 162 6.07 Profitability ratio .................................................................................................................................. 163 6.08 Return on revenue................................................................................................................................ 163 6.09 Revisions to technical provisions / technical provisions ....................................................................... 163 6.10 Nominal net investment yield .............................................................................................................. 164 6.11 Real net investment yield ..................................................................................................................... 165 6.12 Return on equity (ROE) [FSI] ................................................................................................................ 166 6.13 Earnings per employee......................................................................................................................... 166 6.14 Return on assets (ROA) [FSI Life] .......................................................................................................... 167 6.15 Policies lapsed or surrendered / policies in force at beginning of the year .......................................... 167 6.16 Market value / book value ................................................................................................................... 168 6.17 Price / earnings ratio ........................................................................................................................... 168 6.18 Price / gross written premium ............................................................................................................. 169

7. LIQUIDITY AND ALM .......................................................................................................................................... 169 7.01 Liquid assets / current liabilities .......................................................................................................... 169 7.02 Liquid assets / total liabilities............................................................................................................... 170 7.03 Liquid assets / total assets ................................................................................................................... 171 7.04 Liquid liabilities / total liabilities .......................................................................................................... 172 7.05 Net open foreign exchange position / capital ...................................................................................... 172 7.06 Duration of assets / duration of liabilities............................................................................................ 173 7.07 Highest quality liquid assets / claims ................................................................................................... 175

8. SUBSIDIARIES AND RELATED PARTIES ..................................................................................................................... 175 8.01 Group debtors / total assets ................................................................................................................ 175 8.02 Related party receivables / total assets ............................................................................................... 176 8.03 Due to related parties / total assets .................................................................................................... 176 8.04 (Investments in related parties + related party receivables) / total assets .......................................... 177 8.05 (Investments by related parties + due to related parties) / total assets .............................................. 178 8.06 (Revenues from related parties + expenditures to related parties) / (total revenues + total

expenditures) .................................................................................................................................................... 178 8.07 Group (gross written premium + paid claims) / total (gross written premium + paid claims) ............. 179 8.08 Related party (gross written premium + paid claims) / total (gross written premium + paid claims) . 179

9. INDUSTRY‐WIDE ................................................................................................................................................ 180 9.01 Assets / total financial system assets [FSI] .......................................................................................... 180 9.02 Assets / gross domestic product [FSI] .................................................................................................. 180 9.03 Penetration .......................................................................................................................................... 180 9.04 Density ................................................................................................................................................. 181 9.05 Density ‐ in USD.................................................................................................................................... 181 9.06 Concentration ratio .............................................................................................................................. 182 9.07 Herfindahl‐Hirschman Index ................................................................................................................ 183 9.08 Assets lost during the previous 5 years / average assets ..................................................................... 184 9.09 Inclusion ............................................................................................................................................... 184

1. Capital

1.01 Gross written premium / capital

This indicator is calculated as the ratio of gross written premium to capital. Capital can be

determined as total assets minus total liabilities.

Capital provides a cushion for absorbing losses. Gross written premium is a rough proxy for the

extent of an insurer’s exposure to losses from underwriting insurance. This indicator measures

the adequacy of the cushion without considering the effect of reinsurance. The ratio of net

written premium to capital can also be of interest.

The higher the ratio, the more risk the insurer bears in relation to capital. Thresholds of

supervisory concern typically vary between 500% and 900%. Thresholds for non‐life insurers are

often lower than those for life insurers.

The distribution of premium by class of business should be considered when analyzing this

ratio. Insurers with a larger portion of premium from riskier and longer‐tail classes of business

should generally maintain a lower ratio because their results can be more variable. Insurers

with stable profits and adequate reinsurance coverage are better able to sustain a higher ratio

than those with losses, unstable profits, inadequate reinsurance, or reinsurance with weak

reinsurers.

1.02 Net written premium / capital

This indicator is calculated as the ratio of net written premium to capital. Capital can be


Capital provides a cushion for absorbing losses. Net written premium is a rough proxy for the

extent of an insurer’s retained exposure to losses from underwriting insurance. This indicator

measures the adequacy of the cushion after considering the effect of reinsurance. For life

insurers, the ratio of capital to technical provisions should also be considered, because written

premium is a less useful proxy of exposure to losses for insurers with longer term business. The

ratio of gross written premium to capital can also be of interest.

The higher the ratio, the more risk the insurer bears in relation to capital. Thresholds of

supervisory concern typically vary between 300% and 500% or more. Thresholds for non‐life

insurers are often lower than those for life insurers.

The distribution of premium by class of business should be considered when analyzing this

ratio. Insurers with a larger portion of premium from riskier and longer‐tail classes of business

should generally maintain a lower ratio because their results can be more variable. Insurers

with stable profits and adequate reinsurance coverage are better able to sustain a higher ratio

than those with losses, unstable profits, inadequate reinsurance, or reinsurance with weak

reinsurers.

Ultimately, the solvency level of an insurer is critical in providing the protection that is sought

by the supervisor for the policyholders. One of the first “rules of thumb” elaborated was the so

called “Kenney rules”. These relate to premiums and capital. As a useful measure, they are yet

to be surpassed for their simplicity—relating the size of the business to the capital available to

support it. More scientific approaches have been developed, but these rules, as general

guidance to conservative and proper management, still have a sense of reality and insurers that

venture far from these basics do so at their peril.

Consider the example of an insurer that writes CU 500 (CU means currency units) of premiums

and has CU 100 of capital. The indicator is therefore 500%. If this insurer has a combined ratio

of 120%, it will experience a loss of CU 100 on the CU 500 of premiums written. This loss will

render the insurer insolvent. The example illustrates why insurers need to place prudent limits

on their business volumes.

1.03 Capital / total assets

This indicator is calculated as the ratio of capital to total assets. Capital can be determined as

total assets minus total liabilities. Assets are not risk weighted.

This indicator measures the extent to which capital can bear asset risks. For example, some real

estate investments might lose value because of market declines or some receivables might be

uncollectible, either of which would adversely affect capital. This indicator complements the

capital adequacy ratios calculated based on the methodology required by regulation. Also, it

measures financial leverage and is sometimes called the leverage ratio.

The higher the ratio, the more cushion against losses the insurer has in relation to its assets.

Since the life insurance business is generally longer‐term and more asset intensive, thresholds

for supervisory concern might be higher for life insurers than for non‐life insurers.

1.04 Capital / invested assets [FSI]

This indicator is calculated as the ratio of capital to invested assets. Capital can be determined

as total assets minus total liabilities. Invested assets are not risk weighted.

This indicator measures the extent to which capital can bear asset risks related to investments.

For example, some real estate investments might lose value because of market declines or

some issuers of bonds in which the insurer has invested might default on their obligations,

either of which would adversely affect capital.

The higher the ratio, the more cushion against losses the insurer has in relation to its

investments. Since the life insurance business is generally longer‐term and more asset

intensive, thresholds for supervisory concern might be higher for life insurers than for non‐life

insurers. Thresholds might also be higher for insurers that invest in riskier assets than for those

that invest more conservatively.

1.05 Capital / technical provisions

This indicator is calculated as the ratio of capital to technical provisions. Capital can be

determined as total assets minus total liabilities. Technical provisions are the insurer’s liabilities,

of all types, under insurance contracts, net of reinsurance ceded.

This indicator measures the extent to which the capital of an insurer can bear liability risks. For

example, a non‐life insurer’s claims provisions might turn out to have been inadequate

estimates of the ultimate claims costs or a life insurer might experience unexpectedly high

claims because of an epidemic, either of which would adversely affect capital.

This indicator is particularly useful for life insurers. In the case of long‐term life insurance

business, premiums received in the year are not as reliable a proxy for the risk assumed as for

non‐life insurers. Technical provisions might provide a more reliable proxy for the risk, making

this indicator more useful than the ratio of net written premiums to capital.

The higher the ratio, the more cushion against losses the insurer has in relation to its technical

provisions. Thresholds for supervisory concern might be higher for insurers whose technical

provisions are more volatile or difficult to estimate.

1.06 Cover of solvency margin

This indicator is calculated as the ratio of available solvency to required solvency. Both available

solvency and required solvency should be determined in accordance with the solvency margin

requirement of the jurisdiction.

This indicator measures the extent to which an insurer is meeting the solvency margin

requirement. The higher the ratio, the more likely it is that an insurer will be able to meet its

obligations, even if it faces adverse conditions. It can also be useful to examine the composition

of available solvency, for example, the percentage accounted for by high quality liquid assets.

Given that the “required” solvency is a legal obligation on the insurer, then a ratio that is less

than 100% indicates a breach. In many jurisdictions, a higher value is considered as appropriate

and so a figure below a control level, such as 200%, may be a trigger for supervisory

intervention.

Caution must be exercised in comparing solvency ratios across jurisdictions, because there can

be significant differences in the form and details of the requirements. One major form of

solvency requirement is an index‐based method, where the required margin is defined in terms

of the greater of several calculations, such as a fixed amount, a percentage of premiums, and a

percentage of claims provisions. A more complex approach can apply different premiums and

claims factors to different classes of business based on the perceived risk. The second major

form of solvency requirement is a risk‐based capital adequacy requirement (see the guidance

on risk‐based capital adequacy ratios).

Available solvency can be determined fundamentally as total assets minus total non‐capital

liabilities. However, the requirements of a jurisdiction will typically specify details regarding the

inclusion, exclusion, or adjustment of various items. Non‐capital liabilities include technical

provisions and liabilities such as accounts payable, but not liabilities arising from the issuance of

a capital instrument, such as preferred shares, by the insurer. Available solvency might be

reduced by excluding some assets considered less readily available to meet liabilities, such as

furniture and equipment and goodwill, or by increasing some liabilities that might be

considered less likely to be sufficient to absorb losses. The effects of such adjustments need to

be considered when interpreting the results.

1.07 Risk‐based capital adequacy ratios

This indicator is calculated as the ratio of available capital to required capital. Both available

capital and required capital should be determined in accordance with the risk‐based capital

adequacy requirement of the jurisdiction.

This indicator measures the extent to which an insurer is meeting the risk‐based capital

adequacy requirement. The higher the ratio, the more likely it is that an insurer will be able to

meet its obligations, even if it faces adverse conditions. Risk‐based capital adequacy

requirements generally provide a more accurate measure of an insurer’s exposure to risks than

do simpler solvency margin requirements (see the guidance on cover of solvency margin).

Available capital is sometimes classified into various “tiers” of quality, in which case indicators

would be calculated not only using total available capital but also using only the highest tier(s).

It can also be useful to examine the composition of required capital by risk category or

subcategory, to obtain insight on the relative exposure of an insurer to various types of risks.

Given that the “required” capital is a legal obligation on the insurer, then a ratio that is less

than 100% indicates a breach. In many jurisdictions, a higher value is considered as appropriate

and so a figure below a control level, such as 200%, may be a trigger for supervisory

intervention.

Caution must be exercised in comparing risk‐based capital adequacy ratios across jurisdictions,

because there can be significant differences in the form and details of the requirements. For

example, available capital might be classified into various tiers and required capital might be

determined by applying factors or stress scenarios.

Available capital can be determined fundamentally as total assets minus total non‐capital

liabilities. However, the requirements of a jurisdiction will typically specify details regarding the

inclusion, exclusion, or adjustment of various items. Non‐capital liabilities include technical

provisions and liabilities such as accounts payable, but not liabilities arising from the issuance of

a capital instrument, such as preferred shares, by the insurer. Available capital might be

reduced by excluding some assets considered less readily available to meet liabilities, such as

furniture and equipment and goodwill. In jurisdictions where available capital is classified into

various tiers of quality, paid‐up ordinary share capital and retained earnings would be in the

highest tier, but capital arising from the issuance of preferred shares might be in a lower tier.

The effects of such adjustments need to be considered when interpreting the results.

The calculation of required capital can also take various forms. One major form is a factor‐

based method, where the required capital is calculated by applying risk weights to various

parameters, such as premiums, technical provisions, and assets, with the risk weights varying

according to the relative risks of adverse changes in the parameters. Risk‐based capital

adequacy requirements might also apply factors to various values but might combine these

“capital charges” following the statistical theory by squaring the values before adding them and

then taking the square root of the result. In some jurisdictions, insurers are required to apply

stress scenarios to calculate the requirements.

1.08 Growth in capital

This indicator is calculated as the ratio of the change in capital during the measurement period

to capital at the end of the previous measurement period. Capital can be determined as total

assets minus total liabilities.

Capital provides a cushion for absorbing losses. This indicator measures the improvement or

deterioration of the size of this cushion. It might also be calculated using available solvency or

available capital (in total and by tiers), determined in accordance with the regulatory

requirements of the jurisdiction.

The higher the ratio, the more rapidly the cushion for absorbing losses is growing. However, not

only deterioration or slow growth, but also very rapid growth can be of supervisory concern.

Thresholds for supervisory concern can vary considerably, depending on market conditions in

the jurisdiction. Lower limits range from ‐10% to 20%, while an upper limit of 50% is not

unusual.

A lower limit is used because a decrease in capital, or even slow growth in capital, is a cause for

concern. If the indicator falls below this limit, the reasons for the change should be determined,

as well as whether these factors will be repeated in future years. Reasons might include

investment losses, underwriting losses, earnings strain from rapid growth of the business, and

high dividends to shareholders.

An upper limit is used because experience has shown that some insurers have reported

dramatic increases in capital prior to their failure. Large increases in capital may indicate

instability, the shifting of capital from other companies within a group, significant growth, or

mergers and acquisitions.

1.09 Net growth in capital

This indicator is calculated as the ratio of the change in capital during the measurement period,

net of capital contributed during such period, to capital at the end of the previous

measurement period. Capital can be determined as total assets minus total liabilities.

Capital provides a cushion for absorbing losses. This indicator measures the improvement or

deterioration of the size of this cushion based on operational results. Changes in surplus notes,

capital contributions, and adjustments to capital are removed to highlight the insurer’s

operations. It might also be calculated using available solvency or available capital (in total and

by tiers), determined in accordance with the regulatory requirements of the jurisdiction, after

making the same adjustments.

The higher the ratio, the more rapidly the cushion for absorbing losses is growing because of

operational results. However, not only deterioration or slow growth, but also very rapid growth

can be of supervisory concern. Thresholds for supervisory concern can vary considerably,

depending on market conditions in the jurisdiction. Lower limits range from ‐10% to 20%, while

an upper limit of 50% is not unusual.

A lower limit is used because a decrease in capital, or even slow growth in capital, is a cause for

concern. If the indicator falls below this limit, the reasons for the change should be determined,

as well as whether these factors will be repeated in future years. Reasons might include

investment losses, underwriting losses, earnings strain from rapid growth of the business, and

high dividends to shareholders.

An upper limit is used because experience has shown that some insurers have reported

dramatic increases in capital prior to their failure. Large increases in capital may indicate

instability, significant growth, or mergers and acquisitions.

1.10 Statutory deposit / required deposit

This indicator is calculated as the ratio of the actual statutory deposit of an insurer at the

reporting date to the required deposit. The required deposit should be determined in

accordance with the statutory deposit requirement of the jurisdiction.

This indicator measures whether an insurer is meeting the statutory deposit requirement. In

some jurisdictions, insurers are required by law to deposit cash or high‐quality fixed‐income

securities, such as government bonds, with the supervisor or in a trust account. The

requirement might be a fixed amount, a percentage of premiums, a percentage of the

minimum required capital, or the highest of two or more of these amounts. The deposits

provide liquid assets that are readily accessible in the event an insurer fails.

A ratio of less than 100% indicates a breach of the requirement. Insurers seldom deposit any

more assets than are required.

1.11 Capital in excess of minimum required / average annual loss

This indicator is calculated as the ratio of the amount by which an insurer’s capital exceeds the

minimum required capital to the average annual pre‐tax loss of the insurer over the past two

years. The result is typically expressed in years. The capital and the minimum required capital

should be determined in accordance with the regulatory requirements of the jurisdiction, for

example, risk‐based capital adequacy requirements or solvency margin requirements. This

indicator is sometimes referred to as the burn rate. It is relevant only for insurers that are

suffering losses.

This indicator provides an estimate of how long an insurer that is suffering losses can continue

to operate before it will breach the minimum capital requirements.

For example, consider an insurer with capital of 1,500 compared to a minimum requirement of

1,000. The insurer suffered losses of 200 and 400 in the two most recent years. The indicator is

calculated as the ratio of 500 (which is 1,500 minus 1,000) to 300 (the average of 200 and 400).

The result of 1.67 means that the insurer is likely to breach the minimum capital requirement in

less than two years.

Thresholds for supervisory intervention vary. For example, one supervisor takes action if the

indicator is less than 3 and another if it is less than 1.

2. Assets

2.01 (Real estate + unquoted equities + receivables) / total assets

This indicator is calculated as the ratio of the sum of real estate assets, unquoted equities, and

receivables to total assets. Quoted equities should also be included in jurisdictions where they

are illiquid or not regularly traded, as should other assets that may have similar characteristics,

such as private equity funds. The values of the assets used in the calculation should be those

determined for regulatory reporting purposes.

This indicator is a measure of asset quality, focused on asset classes that have the largest

probability of being impaired. Both real estate and unquoted equities are illiquid assets, with

real estate often being difficult to value in many jurisdictions. Receivables may expose the

insurer to a considerable credit risk and overstate assets if there are insufficient provisions for

uncollectible debts.

The lower the ratio the less exposure an insurer has to these potentially problematic assets.

Some supervisors would consider a ratio of 40% or more to be of concern.

Assets can be categorized as:

investments of the insurer;

amounts owing to the insurer from third parties, including premiums that have yet to be

received from policyholders and intermediaries;

other operating assets such as equipment; and

amounts owing from reinsurers.

Ultimately, the supervisor is interested in the quality of the asset portfolio, its appropriateness

reflecting the nature of the business mix on the liability side of the balance sheet, any potential

source of concentration of counterparty risk, and the liquidity of the assets compared to the

needs of the insurer to meet its obligations to policyholders as they fall due.

2.02 Real estate / total assets

This indicator is calculated as the ratio of real estate assets to total assets. The values of the

assets used in the calculation should be those determined for regulatory reporting purposes.

This indicator is a measure of asset quality. Real estate can have a high probability of being

impaired. It is an illiquid asset, which is often difficult to value in many jurisdictions.

The lower the ratio the less exposure an insurer has to real estate assets. Thresholds for

supervisory concern typically range from 10% to 20%. However, in jurisdictions where

investment markets are not well developed, supervisors might be prepared to accept larger

shares of investment in real estate.

2.03 Real estate / capital

This indicator is calculated as the ratio of the real estate assets to capital. The values of the

assets used in the calculation should be those determined for regulatory reporting purposes.

Capital can be determined as total assets minus total liabilities.

This indicator measures the extent to which an insurer’s capital might be adversely affected by

problems with its real estate assets. Real estate can have a high probability of being impaired. It

is an illiquid asset, which is often difficult to value in many jurisdictions.

The lower the ratio the less an insurer’s capital is exposed to the potential deterioration

because of problems with its real estate assets. If the ratio is high, then a relatively small

deterioration in the value of real estate could have a large effect on capital.

Consider the example of an insurer that has CU 500 (CU means currency units) of assets,

including CU 200 of real estate, and CU 100 of capital. The indicator is therefore 200%. If real

estate values decline by 30% the insurer’s capital will decrease by more than one‐half, to CU 40.

2.04 (Real estate + mortgages) / total assets

This indicator is calculated as the ratio of the sum of real estate assets and mortgages to total

assets. The values of the assets used in the calculation should be those determined for

regulatory reporting purposes.

This indicator is a measure of asset quality, focused on asset classes exposed to risks in the real

estate market. Real estate can have a high probability of being impaired. It is an illiquid asset,

which is often difficult to value in many jurisdictions. In some jurisdictions, insurers are exposed

to risks in the real estate market not only through investments in real estate but also through

mortgage lending. Mortgage lending subjects an insurer to counterparty credit risk. Also,

mortgage loans are secured by real estate, the valuation and liquidity of which can be of

concern in the event of default. Real estate and mortgage loans may be overstated. Excessive

investment in real estate and mortgage loans, investment in non‐income producing real estate,

and overdue or restructured mortgage loans are relatively common sources of financial

difficulty.

The lower the ratio the less exposure an insurer has to risks in the real estate market.

Thresholds for supervisory concern typically range from 10% to 30%. However, in jurisdictions

where investment markets are not well developed, or for life insurers that are using mortgages

to match long‐term liabilities such as annuities, supervisors might be prepared to accept higher

ratios.

2.05 Maximum deposits in a single bank / total assets

This indicator is calculated by first calculating the ratio, with respect to each bank in which an

insurer has deposits, of the outstanding total deposits by the insurer in the bank to the total

assets of the insurer. The indicator is the maximum of these ratios. The values of the assets

used in the calculation should be those determined for regulatory reporting purposes.

This indicator is a measure of asset concentration risk. In virtually all jurisdictions, banks are

regulated financial institutions, and are typically high‐quality counterparties. However, large

deposits in a single bank expose an insurer to the risk of significant loss if the bank was to fail.

Such concentrations can also create significant cross‐sectoral exposures, potentially creating

systemic risk. Furthermore, although bank deposits are typically liquid, they seldom generate

sufficient rates of return to contribute significantly to the profitability of the insurer.

The lower the indicator, the less exposure an insurer has to potential losses in the event of a

bank failure. Thresholds for supervisory concern typically range from 5% to 25%. However, in

jurisdictions where investment markets are not well developed, supervisors might be prepared

to accept higher ratios.

2.06 (Cash + loans + investments) / total assets

This indicator is calculated as the ratio of the sum of cash, loans, and investments to total

assets. The values of the assets used in the calculation should be those determined for


This indicator is a measure of the extent to which assets are available for or being used as

investments.

A higher ratio is more desirable than a lower ratio, because it indicates the insurer has a high

proportion of tangible assets, which can be invested to earn income or sold to meet obligations.

Thresholds for supervisory concern might depend on the extent to which an insurer engages in

investment activities versus other activities. For example, some supervisors use higher

thresholds for life insurers than for non‐life insurers. Some supervisors would consider a ratio of

less than 60% to be of concern, but thresholds as high as 90% are being used.

2.07 Receivables / (gross written premium + reinsurance recoveries)

This indicator is calculated as the ratio of receivables to the sum of gross written premium and

reinsurance recoveries. All types of receivables should be included, including premiums

receivable and reinsurance recoverables. The values of the receivables used in the calculation

should be those determined for regulatory reporting purposes, which might be net of

provisions for unrecoverable amounts. “Reinsurance recoveries” means the amounts recovered

during the measurement period, not the amounts recoverable at the end of the period.

This indicator measures the level of credit control exercised by an insurer. Debtors are often

either policyholders or intermediaries in the case of premium income, and reinsurers in the

case of reinsurance recoverables. Receivables may expose the insurer to a considerable credit

risk and overstate assets if there are insufficient provisions for collection problems.

A low ratio is desirable. A high ratio suggests that the credit policy and collection practices of

the insurer are weak, which would be of particular concern if receivables are a relatively large

proportion of assets.

Both the credit worthiness of the counterparties and concentrations of credit risk should be

examined. The aging of receivables should also be analyzed. Long‐outstanding receivables

should account for a small portion of total receivables. If there is a likelihood of not being able

to collect receivables, adequate provision should be made.

2.08 Receivables / capital

This indicator is calculated as the ratio of receivables to capital. All types of receivables should

be included, including premiums receivable and reinsurance recoverables. The values of the

receivables used in the calculation should be those determined for regulatory reporting

purposes, which might be net of provisions for unrecoverable amounts. Capital can be


This indicator measures the extent to which an insurer’s capital might be adversely affected if

its receivables cannot be collected.

The lower the ratio the less an insurer’s capital is exposed to the potential deterioration

because of problems with its receivables. If receivables are high, the insurer’s capital might be

significantly eroded if the receivables cannot be collected. Thresholds for supervisory concern

from 10% to as high as 100% are being used, although maximum ratios toward the middle of

that range might be more typical.

Receivables from policyholders and intermediaries as a percentage of capital is a particularly

useful indicator of potential problems.

Reinsurance recoverables (amounts owing from reinsurers or amounts that are expected to be

claimed — the difference between gross and net (of reinsurance) technical provisions) can

represent a large part of the insurer’s balance sheet. Reinsurance recoverables may be high

because reinsurance ceded is high, the insurer has had some large claims, or its reinsurers are

slow in paying. If this exposure is high, the supervisor should seek some assurance as to the

underlying credit risk represented.


examined. The aging of receivables should also be analyzed. Long‐outstanding receivables

should account for a small portion of total receivables. If there is a likelihood of not being able

to collect receivables, adequate provision should be made.

2.09 (Non‐performing investment assets and loans + receivables over 90 days) / total assets

This indicator is calculated by taking the value of non‐performing investment assets and loans,

as well as receivables over 90 days, minus the value of specific provisions (to the extent they

have not already been deducted in calculating the reported asset values) as the numerator of

the ratio and total assets as the denominator. Non‐performing investment assets and loans are

those on which the counterparty is late on making payments or is in danger of missing

payments. Loans where the borrower is 90 days late on payments are considered non‐

performing, but any loan in default or near default may also be called non‐performing.

This indicator is a measure of credit quality. Non‐performing assets and long‐outstanding

receivables may expose an insurer to a considerable credit risk and overstate assets if there are

insufficient provisions for collection problems.

Low‐quality assets such as these should account for a small portion of total assets. Some

supervisors would consider a ratio of 3% or more to be of concern, while others would accept

up to 10%.

Other indicators that relate to more general credit quality can also be borrowed from the

banking analysis. These would address assets that may be defined as “non‐performing” or the

general structure of ageing of debts.

2.10 Receivables over 90 days / total receivables

This indicator is calculated as the ratio of receivables over 90 days to total receivables.

This indicator measures the level of credit control exercised by an insurer. A high ratio suggests

that the credit policy and collection practices of the insurer are weak, which would be of

particular concern if receivables are a relatively large proportion of assets.

Debtors are often either policyholders or intermediaries in the case of premium income, and

reinsurers in the case of reinsurance recoverables. Receivables may expose the insurer to a

considerable credit risk and overstate assets if there are insufficient provisions for collection

problems.

A low ratio is desirable. Some supervisors would consider a ratio of more than 0% to be of

concern, while others would accept up to 50%, depending on the situation in the jurisdiction.


examined. If there is a likelihood of not being able to collect receivables, adequate provision

should be made.

2.11 Equities / total assets

This indicator is calculated as the ratio of equities to total assets. Other investments that are

like equities, such as mutual funds and hedge funds, should be included in the numerator.

However, equity investments that are on the balance sheet of the insurer but in fact are part of

risk pass‐through products, such as unit‐linked life insurance, should be excluded from both the

numerator and denominator. The values used in the calculation should be those determined for


This indicator measures the extent of an insurer's exposure to stock market risk and

fluctuations of the economy.

The lower the ratio the less exposure an insurer has to equity risks. Thresholds for supervisory

concern from 5% to as high as 30% are being used, although maximum ratios of 20% to 25%

might be more typical.

If the proportion of equities in total assets is significant, further examination of the portfolio

composition is necessary, with special emphasis on the possible correlation of exposure on the

asset and liability sides of the balance sheet. In fact, the need to consider both sides of the

balance sheet simultaneously is more general. While the indicators of asset quality are the

same for both life and non‐life insurers, they need to be evaluated in the context of the nature

of an insurer’s business. For instance, it would be reasonable for a life insurer or a non‐life

insurer with long‐tail liabilities to have a relatively larger proportion of assets invested in riskier

(e.g., equities) or less‐liquid (e.g., real estate) assets than a non‐life insurer with short‐term

business, as the yield on these assets can be expected to better match the future obligations.

Also, some risk management tools and hedging strategies, including the use of derivatives,

might lower the aggregate (matched) risk, even though they may appear to add risk if analyzed

separately.

2.12 Non‐performing loans / total gross loans

This indicator is calculated as the ratio of the value of non‐performing loans to the total value of

the loan portfolio (including non‐performing loans, and before the deduction of specific loan

loss provisions). Both mortgages and other types of loans should be included, except for policy

loans that are fully secured by the cash values of the insurance policies.

This indicator helps to identify problems with asset quality in the loan portfolio.

Some insurers include banking activities on the asset side of their balance sheet by direct

lending to financial and nonfinancial companies. Loans other than mortgages form a substantial

part of investments by life insurers in some countries, and this type of asset has been one of

the key problems in insurance failures in these countries.

A low ratio is desirable. The thresholds for supervisory concern should be consistent with those

used by the banking supervisor in the jurisdiction, with respect to loan portfolios of similar

composition.

2.13 Maximum investment in a single counterparty / total assets

This indicator is calculated as the ratio of the maximum investment by an insurer in a single

counterparty to the total assets of the insurer. The numerator should include all investments in

and loans to the counterparty and persons related to the counterparty, such as companies

within a group. The values used in the calculation should be those determined for regulatory

reporting purposes.

An insurer’s investments should be diversified. This indicator provides a measure of the extent

to which an insurer’s investments lack diversification with respect to counterparties.

Concentration in a single counterparty not only exposes an insurer to credit risk but also,

depending on the relationship with the counterparty, might affect the insurer’s ability to take

other decisions. For example, an insurer might invest in a company in order to sell insurance

coverage to it, which could affect the insurer’s decisions on underwriting and claims matters.

A low ratio is desirable. Thresholds for supervisory concern from 5% to 15% are being used.

2.14 Maximum receivable from a single counterparty / total assets

This indicator is calculated as the ratio of the maximum receivable from a single counterparty to

the total assets of the insurer. The numerator should include all amounts receivable from the

counterparty and persons related to the counterparty, such as companies within a group. The

values used in the calculation should be those determined for regulatory reporting purposes.

An insurer should not be unduly exposed to any one debtor. This ratio provides an indication of

the extent to which receivables lack diversification with respect to counterparties.

Concentration of receivables in a single counterparty not only exposes an insurer to credit risk

but also, depending on the relationship with the counterparty, might affect the insurer’s ability

to take other decisions. For example, an insurer might extend credit to a policyholder or

intermediary with respect to the payment of premiums in order to sell insurance, which could

affect the insurer’s decisions on underwriting and claims matters.

A low ratio is desirable. Some supervisors would consider a ratio of 5% or more to be of

concern.

2.15 Gross asset position in financial derivatives / capital

This indicator is calculated by using the market value of financial derivative assets as the

numerator and capital as the denominator. Capital can be determined as total assets minus

total liabilities.


its financial derivative asset positions decrease in value.

It should be used in conjunction with the indicator on the gross liability position in financial

derivatives. Together, they can provide some insight on the insurer’s risk management strategy.

For example, if both ratios are low, the insurer is making little use of financial derivatives. If

either ratio is high, the insurer is making significant use of financial derivatives. If both ratios

are high, the market conditions that would cause adverse changes in the values of the asset and

liability positions in financial derivatives should be examined, to ensure that both would not be

adversely affected by the same market conditions.

2.16 Gross liability position in financial derivatives / capital

This indicator is calculated by using the market value of financial derivative liabilities as the

numerator and capital as the denominator. Capital can be determined as total assets minus

total liabilities.


its financial derivative liability positions increase in value.

It should be used in conjunction with the indicator on the gross asset position in financial

derivatives. Together, they can provide some insight on the insurer’s risk management strategy.

For example, if both ratios are low, the insurer is making little use of financial derivatives. If

either ratio is high, the insurer is making significant use of financial derivatives. If both ratios

are high, the market conditions that would cause adverse changes in the values of the asset and

liability positions in financial derivatives should be examined, to ensure that both would not be

adversely affected by the same market conditions.

2.17 Investments: distribution by type

The distribution of investments by type is not a single ratio. There are many ways that the asset

mix can be determined, depending on how assets are classified for regulatory reporting. It

would be normal, in the case of examining the assets that are part of the investment

operations, to express the investments of each type as a percentage of the total investments.

The distribution indicates the extent to which investments are diversified amongst different

types of investment. It is a measure of concentration risk of an insurer.

Insurers normally consider the market value of the investments when conducting their

investment operations regardless of whether this is the basis of the values used for regulatory

reporting in the jurisdiction. It is useful for the supervisor to have access to the market values,

so that asset mix ratios can be calculated both on this basis and with the values used for

regulatory reporting.

The distribution of investments should be assessed with reference to both regulatory

requirements for diversification and the insurer’s investment policy. Reasons for any significant

changes in the distribution of investments should be investigated. For example, changes in the

investment mix might be triggered by changes in ownership and management or changes in the

business focus of the insurer.

Some supervisors would consider a change of 10% or more in the share of any type of

investment to be of potential concern. Other supervisors set a threshold based on the average

change in the distribution. For example, supervisors in the USA calculate an indicator as the

average of the absolute value of percentage changes in the shares of each of 16 types of asset,

with 5% as the threshold. Some supervisors set benchmarks that vary by type of investment.

Other supervisors benchmark against market average distributions (for example, in the

European Union).

2.18 Investments: geographical distribution

The geographical distribution of investments is not a single ratio. In examining this distribution,

the total investments in each geographical region would be expressed as a percentage of the

total investments.

The distribution indicates the extent to which investments are diversified amongst different

geographical regions. It facilitates the assessment of credit and market risk arising from

exposures to particular countries and helps to assess the impact of adverse events in these

countries on an insurer and the domestic financial system. It is a measure of concentration risk

of an insurer.

Investment in foreign assets might enable an insurer to diversify its investment risks and to take

advantage of types of investments not available in the local market. However, currency

movements can affect the values of foreign assets, so exposure to foreign exchange risks should

be examined. This is particularly important when liabilities are in the local currency.

The geographical distribution of investments should be assessed with reference to regulatory

requirements, the insurer’s investment policy, and the insurer’s exposure to foreign currency

liabilities. For example, a large or increasing level of foreign exchange exposure may need to be

investigated by finding out the policy toward and extent of hedging used by the insurer.

In jurisdictions that cover a large and diverse area, supervisors might also assess the

distribution of investments among relevant geographical areas within the jurisdiction. For

example, an insurer with a concentration of investments in one region of the country might be

exposed to the risk of significant losses in the event of an economic downturn or natural

catastrophe in that region.

2.19 Investments: sectoral distribution

The sectoral distribution of investments is not a single ratio. In examining this distribution, the

total investments in each economic sector would be expressed as a percentage of the total

investments.

The investments of an insurer should be diversified among various sectors of the economy, to

mitigate the risk of exposure to significant losses in the event of problems that affect a

particular sector. The distribution indicates the extent to which investments are diversified

amongst different economic sectors. It is a measure of concentration risk of an insurer.

Banking supervisors typically review the sectoral distribution of loans; insurance supervisors

might use the same sectoral breakdown. This would facilitate the sharing of information among

supervisors for both group‐wide supervision and macroprudential risk assessment.

3. Reinsurance

3.01 Risk retention ratio

The risk retention ratio is calculated as the ratio of net written premium to gross written

premium, where gross written premium is the sum of written premium on policies issued by

the insurer and reinsurance assumed. Net written premium is gross written premium minus

written premium on reinsurance ceded. The risk retention ratio might also be calculated using

earned premium.

It provides an indication of the extent to which an insurer is willing to retain the insurance risk

on the business that it writes. Some supervisors have established benchmarks for the risk

retention ratio of an insurer as a whole. For example, a non‐life insurer with a ratio of less than

40% or more than 80%, or a life insurer with a ratio of less than 60% or more than 90% might

trigger further analysis. Many factors can affect the risk retention ratio, so such overall ratios

should be used with caution.

The risk retention ratio can vary significantly, for example, depending on the type of business

written by the insurer. Therefore, it should be calculated not only for an insurer as a whole, but

also by class of business. For example, the risk retention ratio for short‐tail business with high

claims frequency, such as comprehensive motor, may appropriately be high (>80%), whereas

the risk retention ratio for fire, engineering or liability business may appropriately be low (<

20%). If the risk retention ratio is high, the adequacy of the insurer’s capital to withstand

adverse claims experience should be assessed, considering its maximum exposure to a single

risk and to a single event.

Risk retention ratios will not be the same in all countries but will vary based on market

circumstances in each jurisdiction. However, where risk retention ratios are low relative to the

industry then this may suggest that the insurer is either purchasing far more reinsurance than

its peers or that it is paying more than would be expected for its reinsurance cover. If the

insurer purchases more than the usual level of reinsurance then it is possible that it may

believe, implicitly or explicitly, that it does not have the capital available to allocate to the risk

as much as other insurers.

If the use of reinsurance is particularly high, a practice known as “fronting”, then an insurer may

consider itself to be largely immune to the underlying risk. In some cases, for example, an

insurer may be presented with a risk that it would not normally accept but it is also presented

with a corresponding reinsurance contract that means that the insurer would appear to bear

little of the insurance risk. In such cases, the insurer may decide to write the policy and take out

the reinsurance contract, simply to make a profit from the reinsurance commissions it will

receive. Fronting poses dangers to the insurer and does not represent best practice. First, if the

reinsurer fails to deliver on the reinsurance contract, then the insurer will be on risk in full.

Second, from a public policy perspective, fronting might be used to avoid the requirement to be

licensed in the domicile. It is a practice that, in effect, amounts to the insurer renting its license

to conduct insurance business. If fronting appears to be happening, the supervisor should

carefully check the reinsurance arrangements to ensure the insurer has reinsured its business

adequately, including its inward reinsurance, and that its reinsurers are good credit risks.

In some circumstances, the pricing cycle in the reinsurance market will affect an insurer’s

attitude toward ceding risk. If reinsurance is relatively cheap, then a cost‐benefit analysis will

make reinsurance relatively more attractive and it may make sense for an insurer to increase

the amount of risk that it cedes to take advantage of the lower costs. As a result, changes in

reinsurance retention rates need to be interpreted in the context of costs and prices in the

reinsurance markets more generally. Understanding an insurer’s retention ratios will be

informed by an understanding of the behavior of the market and the reaction of other insurers

to the same changes to the pricing of reinsurance.

Where the use of reinsurance changes over time, either decreasing or increasing, it suggests

that an insurer is changing its reinsurance policy and practice. A supervisor should be interested

in knowing the reasons for the changes with some certainty. Does the insurer believe that its

exposure to risk has increased? Does the insurer believe that its capital position is, in some way,

less secure and should be less exposed?

3.02 (Reinsurance recoveries + reinsurance commissions) / reinsurance ceded

This indicator is calculated as the ratio of the sum of reinsurance recoveries and reinsurance

commissions to reinsurance premiums ceded.

It measures how much an insurer receives back from its reinsurers in terms of claims recoveries

and commissions compared to the reinsurance premiums it has paid. The indicator should be

examined over time and by class of business. Particularly for classes of insurance with

infrequent but severe claims, it can also be useful to calculate the ratio based on an aggregation

of several years’ experience.

A high ratio might indicate that an insurer has experienced adverse claims or has successfully

negotiated favorable terms for its reinsurance. Over time, it is unlikely that the ratio would be

more than 100%, because this would indicate that reinsurers are losing money on their

relationships with the insurer.

A low ratio might indicate that an insurer is having a good period of claims experience.

However, it might also indicate that the insurer is paying a high price for its reinsurance. Where

an insurer is paying more than its peers for reinsurance protection, then this might indicate that

the reinsurers feel that the portfolio of the insurer is poor. It might also indicate that the insurer

is less capable than its peers in designing or negotiating the terms and conditions of its

reinsurance program. Other things being equal, smaller insurers and those in developing

markets are likely to have lower ratios than larger insurers and those in developed markets,

because of differences in their bargaining power.

3.03 Maximum exposure to single risk / capital

This indicator is calculated as the ratio of the maximum exposure of an insurer to a single risk

(sometimes referred to as the per‐risk retention limit) to capital.

It indicates the extent to which the solvency of the insurer is exposed to a large claim. The

indicator may differ by class of business.

Acceptable maximum ratios established by supervisors typically vary between 2% and 10%.

3.04 Maximum exposure to single event / capital

Increasingly, with the use of more complex risk management and measurement techniques,

insurers have sought to determine a maximum that they will have to pay out in the case of a

single catastrophic event (the Maximum Event Retention or “MER”), or the maximum total

claims that they may have to pay in the event of a probable but very unlikely event (sometimes

referred to as the Probable Maximum Loss / Claim or “PML”). These events can be described in

terms of their low probability, or “return period” where an event with a probability of 0.5% in a

year would have a “return period” of 200 years or be described as a “one‐in‐200 year” PML

event.

A supervisor is unlikely to receive sufficient information from an insurer to calculate the MER or

PML, but some supervisors require insurers to report the figures that they have determined in

the regulatory returns. It can also be interesting to know the event that would lead to the MER

or PML. Some supervisors also obtain and analyze exceedance probability (EP) curves.

The MER can be compared with the capital available. This can indicate whether the insurer

would still be commercially solvent if the event occurred, or how many such events the insurer

could withstand before it would have an asset deficiency. Acceptable maximum ratios

established by supervisors typically vary between 5% and 10%.

3.05 Maximum premium ceded to a single reinsurer / gross written premium

This indicator is calculated by first calculating the ratio, with respect to each reinsurer to which

an insurer has ceded premiums, of the premium ceded by the insurer to the total gross written

premium of the insurer. The indicator is the maximum of these ratios.

This indicator is a measure of counterparty concentration risk. Large cessions of reinsurance to

a single reinsurer expose an insurer to counterparty concentration risk, should the reinsurer

become unwilling or unable to meet its obligations. The concentration might be a related‐party

risk, if the insurer and reinsurer are members of the same group. Reinsurance concentrations

might also create systemic risk, if several insurers are significantly exposed to the same

reinsurer.

The lower the indicator, the less exposure an insurer has to potential losses in the event of the

failure of its largest reinsurer. Thresholds for supervisory concern vary significantly, ranging

from 5% to as high as 70%. Supervisors in jurisdictions where insurance and reinsurance

markets are not well developed might be prepared to accept higher ratios than those in more

developed markets.

4. Actuarial

4.01 Net claims provisions / average of net claims paid in last three years

This indicator is calculated as the ratio of net claims provisions to the average of net claims paid

in the last three years. Net claims provisions are those at the end of the measurement period,

net of claims provisions in respect of reinsurance ceded. If data on the net claims paid in the

last three years is unavailable, then a similar indicator could be calculated using the average of

the last two years or just the net claims paid in the most recent year, but the results are likely

to be less stable from year to year.

It provides an indication of whether an insurer’s claims provisions are strengthening or

weakening over time. Many factors can affect the indicator, so overall ratios should be used

with caution. The indicator can vary significantly, for example, depending on the type of

business written by the insurer. Therefore, it should be calculated not only for an insurer as a

whole, but also by class of business. This indicator is generally more relevant for non‐life

insurers than for life insurers, because the claims provisions for life insurance business are

usually less subject to the need for estimation.

Benchmarks might be established by class of business. Differences in this indicator amongst

insurers with similar portfolios of insurance business can provide insight on the relative

conservatism of their claims provisioning. Changes over time for a particular insurer might

indicate changes in its claims handling or provisioning practices. In general, an insurer with a

lower ratio than its peers for a given class of business, or whose ratio for a class of business is

decreasing over time would be of potential supervisory concern. Deficiencies in provisions are

of the greatest concern to the supervisor.

For example, consider a jurisdiction in which the ratio for a particular class of business has been

stable over recent years, at 40%. However, Insurer A had a ratio of 38% two years ago, 36% one

year ago, and 34% at the end of the most recent measurement period. Insurer A’s ratio has

been weakening both over time and in relation to its peers. The reasons for these trends should

be investigated.

Claims provisions will vary in their method of estimation, the extent that they involve human

judgment, and the extent to which information is available for the assessment of the claim.

Claims that are in the final stages of settlement may well have a clearly defined outstanding

amount that can represent the provision. More generally, however, the ultimate cost of the

claim is an estimate. In addition, the insurer will have claims that have been incurred but not

reported (IBNR), so will have no information about these except experience. But the fact that it

is certain that some claims will be reported later, and the need to ensure that the insurer

correctly represents its liabilities, means that it should have these provisions.

Given the subjective nature of establishing claims provisions, close examination is needed to

assess whether the provisions established can be viewed as adequate. Insurers may understate

their claims provisions for reasons that can vary from errors or omissions to deliberate

attempts to inflate profits (or to avoid presenting a loss). In between these extremes, there is

the potential for misplaced optimism or the use of a method that is inappropriate.

Alternatively, the actual experience may change, or the insurer may be able to, because of

careful study and improved procedures, adopt a more accurate estimate than they were able to

do in the past. Claims‐based ratios will also be influenced by the insurer’s claims handling

procedures and administrative processes that can alter the timing of claims settlement and

influence the ratios. It can also be useful to consider the rate at which an insurer’s net claims

paid have been changing.

Where the ratio of claims provisions to claims paid shows a decreasing trend then this may

indicate a weakening of the provisions and should be investigated. It may also indicate that the

insurer has been speeding up the claims settlement administration or that there have been

some large cases that distorted the trend – but such alternative explanations should be

supported by some other evidence before they are accepted by the supervisor. Hopefully,

management would have already investigated such a trend and be able to substantiate the

reason.

4.02 Net technical provisions / average of net written premium in last three years

This indicator is calculated as the ratio of net technical provisions to the average of net written

premium in the last three years. Net technical provisions are those at the end of the

measurement period, net of technical provisions in respect of reinsurance ceded. If data on the

net written premium in the last three years is unavailable, then a similar indicator could be

calculated using the average of the last two years or just the net written premium in the most

recent year, but the results are likely to be less stable from year to year.

It provides an indication of whether an insurer’s technical provisions are strengthening or

weakening over time. Many factors can affect the indicator, so overall ratios should be used

with caution. The indicator can vary significantly, for example, depending on the type of

business written by the insurer. Therefore, it should be calculated not only for an insurer as a

whole, but also by class of business. This indicator is equally relevant for both non‐life insurers

and life insurers, although the nature of their technical provisions can differ.

Benchmarks might be established by class of business. Differences in this indicator amongst

insurers with similar portfolios of insurance business can provide insight on the relative

conservatism of their provisioning. Changes over time for a particular insurer might indicate

changes in its provisioning practices. In general, an insurer with a lower ratio than its peers for a

given class of business, or whose ratio for a class of business is decreasing over time would be

of potential supervisory concern. Deficiencies in provisions are of the greatest concern to the

supervisor.

For example, consider a jurisdiction in which the ratio for a particular class of business has been

stable over recent years, at 40%. However, Insurer A had a ratio of 38% two years ago, 36% one

year ago, and 34% at the end of the most recent measurement period. Insurer A’s ratio has

been weakening both over time and in relation to its peers. The reasons for these trends should

be investigated.

Technical provisions for non‐life insurers include unearned premium provisions, unexpired risk

provisions, and claims provisions. Technical provisions for life insurers are typically dominated

by actuarial (mathematical) provisions, with claims provisions accounting for a relatively small

part of technical provisions.

The mechanism for recognizing the premium as being “earned” is perhaps the least judgmental

of all the provisions, so the ratio should be of lower supervisory interest. However, it is still

important to check it because movements in the ratio can result from either errors in the data

submitted by the insurer (that would need to be corrected to ensure a robust analysis of other

items) or deliberate misstatement (that would be a cause for supervisory intervention).

As unearned premium is a function of the premium rates themselves, then the unearned

premium provisions will underestimate the actual resources needed to cover future risks if the

premium rates are not adequate. Where this is the case, then it is pertinent to consider

whether an additional provision for unexpired risk should be made and, if such a provision has

been made, whether it is sufficient.

Claims provisions have already been discussed; see 4.01.

Actuarial provisions are calculated using various methods and assumptions about the future

cash flows under the insurance policies. Their amounts can be very sensitive to the

assumptions, such as the rates of interest used to discount the future cash flows. For example,

an increase of 1 per cent in the discount rate would decrease the actuarial provisions by 15 per

cent for a class of insurance with a 15‐year duration of future liability cash flows, which would

not be unusual for long‐term products such as whole life insurance. It can also be useful to

consider the rate at which an insurer’s technical provisions have been changing and how this

compares to the actual and assumed rates of interest.

When the ratio of technical provisions to premiums is decreasing, it could indicate a weakening

of one or more of the types of provisions, which should be investigated.

4.03 Net claims provisions / capital

This indicator is calculated as the ratio of net claims provisions to capital. Net claims provisions

are those at the end of the measurement period, net of claims provisions in respect of

reinsurance ceded. Claims recoverable from reinsurers are deducted from gross claims

provisions on the assumption that an adverse deviation in claims provisions will in part be

funded by reinsurers. Capital can be determined as total assets minus total liabilities.

Like the ratio of capital to technical provisions, this indicator provides a measure of the extent

to which the capital of an insurer can bear liability risks. However, it focuses on claims

provisions, so it is generally more relevant for non‐life insurers than for life insurers, because

the claims provisions for life insurance business are usually less subject to the need for

estimation.

The higher the ratio, the less cushion the capital of the insurer provides against adverse

developments in its claims provisions. Thresholds for supervisory concern might be lower for

insurers whose claims provisions are more volatile or difficult to estimate. Some supervisors

consider a ratio of 250% or more to be of concern.

A simplified example shows the usefulness of this indicator. Consider an insurer with no

reinsurance and no liabilities except 1,000 in claims provisions. Assume the insurer’s ratio of net

claims provisions to capital is 1,000%. This implies that the assets of the insurer are 1,100 and

its capital is 100. Now, assume that the actuary re‐estimates the claims provisions and discovers

an adverse deviation of 10%. Claims provisions increase by 100 to 1,100, assets stay the same at

1,100 and capital thus decreases to 0, leaving the insurer insolvent.

4.04 Claims development

This indicator calculated as the ratio of the sum of claims and claims adjustment expenses paid

during the last five years, plus the current provisions, to the initial provisions for unpaid claims

and claims adjustment expenses that were established for those claims. For purposes of this

calculation, the claims provision at the beginning of the five‐year period is considered the

“initial provision” for claims incurred more than five years ago. Note that this ratio needs to be

interpreted being aware that claims provisions should correctly include an allowance for

expenses related to claims payments (claims adjustment expenses), whereas the actual

amounts of such expenses might be reported separately from the claims paid.

This indicator measures how the development of claims and claims adjustment expenses

compares to the initial provisions established for those claims. Some supervisors consider a

ratio of 120% or more to be of concern, while others take a more conservative approach and

would investigate any situation where the ratio exceeds 100%.

If the ratio is materially greater than 100%, then this suggests that the claims experience might

have deteriorated or that claims provisions were intentionally understated, and future claims

provisions should also show a corresponding increase. Again, the counter position is that claims

may simply be being settled more quickly—an argument that the total claims outcome remains

largely unchanged and that future payment expectations might be reduced. Interpreting this

ratio, and the action that may be appropriate, would also be informed by understanding the

method used by the insurer in setting these provisions. Some methods, such as a target overall

claim ratio, will automatically take credit for claims being paid earlier, whether this is actually

the case. Other methods, such as the chain ladder methods, will more gradually reflect both

changed experience that is either positive or negative.

The results should be interpreted with care. It is best to calculate the ratios by class of business

because different classes can be expected to show different behaviors and business volume and

mix changes will influence the aggregate results.

Particularly for long‐tail business, insurers may report their expected future claim payments

from the existing business as well as their past claim payments based on both the year of the

occurrence of the claim event and the year (or expected year) of the claim payments. If such

information is available, it may also be informative to calculate the ratio separately for each

year of claim event. If this is done, then it is possible to examine the claims paid in the latest

accounting period compared to those expected when the provisions were determined the

previous year, and to make such comparisons over several years.

4.05 Underwritten business: distribution by class of business

The distribution of underwritten business by class of business is not a single ratio. In examining

this distribution, the written premiums in each class of business would be expressed as a

percentage of the total written premiums.

The distribution indicates the extent to which the business of the insurer is diversified amongst

different classes of business. Such diversification can help to mitigate the risk of exposure to

significant losses in the event of problems that affect a particular class of business. However,

insurers should not diversify beyond their capacity to understand and manage the risks in the

classes of business that they underwrite. Accordingly, both a high concentration in a particular

class of business and a significant increase in the share of a class of business in an insurer’s mix

might be of concern.

The starting point is to summarize the business mix in terms of the proportion of premium for

the insurer which comes from each main class of business and to reflect on how this compares

with previous years. Reasons for any significant changes in the distribution of business should

be investigated. Changes in business mix can reflect positive management action. Alternatively,

they can reflect “accidental” increase in exposure to less profitable segments through

inadequate pricing. The business mix and the trends in the mix will inform the analysis of other

ratios.

A large increase in volume in a class of business may signal a sudden change whereby the

insurer has entered a new product area, distribution niche, or sales territory. It would be a

concern if an insurer did so without recognizing that it will have limited experience regarding

the risk in this new area. There have been cases where insurers have viewed such growth

positively up until they start to see the claims emerge to such an extent that they realize that

they were, in fact, writing a disproportionate share of the poorer quality risks.

The level of an insurer’s concentration by class of business could be measured using the

Herfindahl‐Hirschman Index; see 9.07. The results could be compared over time and in relation

to peers. Alternatively, some supervisors set a threshold based on the average change in the

distribution. For example, supervisors in the USA calculate an indicator as the average of the

absolute value of percentage changes in the shares of each of 9 main classes of life insurance

business, with 5% as the threshold.

4.06 Underwritten business: geographical distribution

The geographical distribution of underwritten business is not a single ratio. In examining this

distribution, the written premiums in each geographical region would be expressed as a

percentage of the total written premiums.


different geographical regions. The distribution of business that is typically examined is local

business versus business in foreign jurisdictions, either separately or in aggregate. In

jurisdictions that cover a large and diverse area, supervisors might also assess the distribution

of business among relevant geographical areas within the jurisdiction.

Underwriting business in foreign jurisdictions might enable an insurer to diversify its insurance

risks. Such diversification can help to mitigate the risk of exposure to significant losses in the

event of problems that affect a region. However, insurers should not diversify beyond their

capacity to understand and manage the risks in the markets in which they underwrite business.

Given the potential for foreign operations to create problems for an insurer, it is usual to

examine the exposure to foreign business.

In jurisdictions that cover a large and diverse area, supervisors might also assess the

distribution of business among relevant geographical areas within the jurisdiction. For example,

an insurer with a concentration of business in one region of the country might be exposed to

the risk of significant losses in the event of an economic downturn or natural catastrophe in

that region.

The geographical distribution of insurance business should be assessed with reference to

regulatory requirements, the insurer’s business plans, and the insurer’s management

capabilities. For example, a large or increasing level of foreign business may need to be

investigated by finding out the source of this business and how it is being managed by the

insurer.

The level of an insurer’s concentration by geographical region could be measured using the

Herfindahl‐Hirschman Index; see 9.07. The results could be compared over time and in relation

to peers.

4.07 Underwritten business: sectoral distribution

The sectoral distribution of underwritten business is not a single ratio. In examining this

distribution, the written premiums in each economic sector would be expressed as a

percentage of the total written premiums. To enable the calculation of this distribution,

insurers would need to record the economic sector in which each non‐personal customer

operates and provide a corresponding breakdown of written premiums. Various classification

systems are used around the world, which typically provide for several levels of grouping.

Banking supervisors typically review the sectoral distribution of loans, so an insurance

supervisor might use the same sectoral classification system and level of grouping as their

banking counterpart in the jurisdiction. This would facilitate the sharing of information among

supervisors for both group‐wide supervision and macroprudential risk assessment.


different economic sectors. The business of an insurer should be diversified among various

sectors of the economy, to mitigate the risk of exposure to significant losses or decreases in

premiums in the event of problems that affect a particular sector. However, insurers should not

diversify beyond their capacity to understand and manage the risks in the markets in which

they underwrite business. Accordingly, both a high concentration by economic sector and a

significant increase in the share of business from a particular economic sector in an insurer’s

mix might be of concern.

4.08 Actuarial assumption: short‐term interest rate

When calculating actuarial technical provisions and premium rates, the actuary discounts

expected future cash flows using assumed rates of interest. Actuaries often use discount rates

that vary over time, for example, following a yield curve or grading from an initial rate to an

ultimate rate. This indicator is the interest rate used for discounting the shortest‐term cash

flows.

The higher the assumed rate of interest the lower the resulting present value of the cash flows

being discounted. The results can be very sensitive to the assumed rates of interest used to

discount the future cash flows. For example, an increase of 1 per cent in the discount rate

would decrease the actuarial provisions by 15 per cent for a class of insurance with a 15‐year

duration of future liability cash flows, which would not be unusual for long‐term products such

as whole life insurance. The short‐term interest rate would affect the present values of both

short‐ and long‐duration cash flows.

Although interest rate assumptions often differ amongst actuaries, supervisors should assess

the reasonableness of the assumptions in light of market conditions. Supervisors should seek

explanations of significant changes from one valuation to the next that are not consistent with

changes in market conditions and for outliers amongst the assumptions used for different

insurers.

4.09 Actuarial assumption: long‐term interest rate

When calculating actuarial technical provisions and premium rates, the actuary discounts

expected future cash flows using assumed rates of interest. Actuaries often use discount rates

that vary over time, for example, following a yield curve or grading from an initial rate to an

ultimate rate. This indicator is the interest rate used for discounting the longest‐term cash

flows.

The higher the assumed rate of interest the lower the resulting present value of the cash flows

being discounted. The results can be very sensitive to the assumed rates of interest used to

discount the future cash flows. For example, an increase of 1 per cent in the discount rate

would decrease the actuarial provisions by 15 per cent for a class of insurance with a 15‐year

duration of future liability cash flows, which would not be unusual for long‐term products such

as whole life insurance. Unlike the short‐term interest rate, the long‐term interest rate would

affect the present values of only long‐duration cash flows.

Although interest rate assumptions often differ amongst actuaries, supervisors should assess

the reasonableness of the assumptions in light of market conditions. Supervisors should seek

explanations of significant changes from one valuation to the next that are not consistent with

changes in market conditions and for outliers amongst the assumptions used for different

insurers.

5. Management

5.01 Gross written premium per employee

This indicator is calculated as the ratio of gross written premium to the number of employees.

The number of employees included in the denominator should be appropriately matched to the

premium included in the numerator; for example, if the gross written premium relates only to

business within the local jurisdiction then only employees whose activities relate to that

business should be included.

This indicator is a measure of operational efficiency, which is likely to be correlated with

general management soundness. Unsound efficiency indicators could flag potential problems in

key areas, including the management of insurance and investment risks.

The same indicator can be calculated for both life and non‐life insurers, but the benchmarks will

be different because the life insurance business typically includes products with a savings

component and its distribution costs are usually front‐loaded into the initial policy years. A

significant change in the indicator for a particular insurer might indicate a significant change in

its business model, which would warrant further analysis and enquiry.

Gross written premium is used as a proxy for the overall volume of business activity. The

analysis needs to reflect the difference in results that single premium versus annual premium

business will have on this indicator.

It also needs to be considered that insurers may use different distribution channels to sell their

products and sometimes may spin off their distribution into subsidiaries or other companies in

a group. This can affect the number of employees; for example, employees of the insurer

working in its branch offices or agencies would be included in the denominator, while

employees of a related bank that are selling bancassurance would not be. In general, internet

and call‐center distribution are cheaper than using brokers or agents, and these factors should

be considered when interpreting the results.

5.02 Assets per employee

This indicator is calculated as the ratio of assets to the number of employees. The number of

employees included in the denominator should be appropriately matched to the assets

included in the numerator; for example, if the assets relate only to business within the local

jurisdiction then only employees whose activities relate to that business should be included.





be different because the life insurance business is more asset intensive. This indicator might

also be compared to the ratios of other financial institutions, such as banks, in the jurisdiction.

A significant change in the indicator for a particular insurer might indicate a significant change

in its business model, which would warrant further analysis and enquiry.

5.03 Operating expenses / gross written premium

This indicator is calculated as the ratio of operating expenses to gross written premium.

Operating expenses would exclude commissions. The operating expenses included in the

numerator should be appropriately matched to the premium included in the numerator; for

example, if the gross written premium relates only to business within the local jurisdiction then

only operating expenses related to that business should be included.






component. A significant change in the indicator for a particular insurer might indicate a

significant change in its business model, which would warrant further analysis and enquiry.

A higher ratio is typically of more concern to supervisors. Thresholds can vary significantly

according to market conditions in the jurisdiction, for example, from 30% to 50%. Some

supervisors also establish thresholds below which they would seek explanation from an insurer.



business will have on this indicator; this might be done by weighting single premiums at 10% to

reduce the distortion that might be caused by single premium business, which sometimes

fluctuates significantly in response to changes in the interest‐rate environment.

This indicator is similar to and should be considered in conjunction with the insurer’s expense

ratio.

5.04 Personnel expenses / gross written premium

This indicator is calculated as the ratio of personnel expenses to gross written premium. The

personnel expenses included in the numerator should be appropriately matched to the

premium included in the numerator; for example, if the gross written premium relates only to

business within the local jurisdiction then only personnel expenses related to that business

should be included.






component. A significant change in the indicator for a particular insurer might indicate a

significant change in its business model, which would warrant further analysis and enquiry.



business will have on this indicator; this might be done by weighting single premiums at 10% to

reduce the distortion that might be caused by single premium business, which sometimes

fluctuates significantly in response to changes in the interest‐rate environment.

It also needs to be considered that insurers may use different distribution channels to sell their

products and sometimes may spin off their distribution into subsidiaries or other companies in

a group. Such factors should be considered when interpreting the results. For example,

although Internet and call‐center distribution might be cheaper than using intermediaries, they

might result in higher personnel expenses and lower commission expenses, which will affect

the indicator. Accordingly, this indicator should be considered in conjunction with the insurer’s

expense ratio.

5.05 Growth in gross written premium

This indicator is calculated as the ratio of the change in gross written premium from that of the

previous year to the gross written premium of the previous year. In both the numerator and the

denominator, single premiums should be weighted at 10% to reduce the distortion that might

be caused by single premium business, which sometimes fluctuates significantly in response to

changes in the interest‐rate environment.

This indicator is a measure of an insurer’s ability to grow its business.

Both very low and very high rates of premium growth can be of supervisory concern.

Thresholds for supervisory concern will depend on the rates of growth of the economy and of

the insurance market overall. Some supervisors establish absolute thresholds, such as growth

rates below ‐10% or above 25%. Alternatively, relative thresholds might be used, such as

growth rates more than 10% below the average growth rate in the insurance market overall or

more than 10% above the average growth rate in the market.

If an insurer is growing its written premium quickly, this may indicate that the insurer is

underpricing its products or that underwriting standards are being relaxed. Alternatively, it may

indicate that the insurer has simply increased its effectiveness in the market or that it is

successfully increasing premium rates. If growth rates show a marked decline, it may be that an

insurer has lost its ability to be competitive in the marketplace.

If written premium is growing quickly, there is a risk that the insurer’s infrastructure may not be

adequate to properly manage the increased volumes of business. In the extreme, an insurer

may attempt to write more business to increase cash flow to meet current claim payments. This

is a particularly concerning situation. Furthermore, rapid premium growth raises the question

of whether the insurer has sufficient financial resources for the level of risk that it is carrying

and, if such growth were to continue, whether it will need to raise capital in the future.

To interpret premium‐based growth rates, it is important to consider industry‐wide levels for

the equivalent ratios. More general factors, such as the performance of the economy, levels of

inflation, unemployment, growth rates and the level of growth relative to the general growth in

the economy (usually the level of written premium relative to GDP can be considered) will be

reflected in insurance markets. It is also necessary to be aware of wider developments such as

the privatization of a class of business, changes in the taxation basis that may make a class of

business more or less attractive, and changes in the regulatory environment that may lead to

volume changes.

5.06 Growth in net written premium

This indicator is calculated as the ratio of the change in net written premium from that of the

previous year to the net written premium of the previous year. In both the numerator and the

denominator, single premiums should be weighted at 10% to reduce the distortion that might

be caused by single premium business, which sometimes fluctuates significantly in response to

changes in the interest‐rate environment.

This indicator is a measure of an insurer’s ability to grow its business. The same factors are

relevant to the interpretation of this indicator as for the growth in gross written premium.

However, capital needs are more closely related to the amount of risk retained by an insurer

than the gross amount of business written. Accordingly, the level and pattern of this indicator

are particularly relevant to assessing the effects of growth on capital adequacy.

Both very low and very high rates of premium growth can be of supervisory concern.

Thresholds for supervisory concern will depend on the rates of growth of the economy and of

the insurance market overall. Some supervisors establish absolute thresholds, such as growth

rates below ‐10% or above 25%. Alternatively, relative thresholds might be used, such as

growth rates more than 10% below the average growth rate in the insurance market overall or

more than 10% above the average growth rate in the market.

If an insurer is growing its written premium quickly, this may indicate that the insurer is

underpricing its products or that underwriting standards are being relaxed. Alternatively, it may

indicate that the insurer has simply increased its effectiveness in the market or that it is

successfully increasing premium rates. If growth rates show a marked decline, it may be that an

insurer has lost its ability to be competitive in the marketplace.

If written premium is growing quickly, there is a risk that the insurer’s infrastructure may not be

adequate to properly manage the increased volumes of business. In the extreme, an insurer

may attempt to write more business to increase cash flow to meet current claim payments. This

is a particularly concerning situation. Furthermore, rapid premium growth raises the question

of whether the insurer has sufficient financial resources for the level of risk that it is carrying

and, if such growth were to continue, whether it will need to raise capital in the future.

To interpret premium‐based growth rates, it is important to consider industry‐wide levels for

the equivalent ratios. More general factors, such as the performance of the economy, levels of

inflation, unemployment, growth rates and the level of growth relative to the general growth in

the economy (usually the level of written premium relative to GDP can be considered) will be

reflected in insurance markets. It is also necessary to be aware of wider developments such as

the privatization of a class of business, changes in the taxation basis that may make a class of

business more or less attractive, and changes in the regulatory environment that may lead to

volume changes.

5.07 Growth in total assets

This indicator is calculated as the ratio of the change in total assets from the end of the

previous year to the total assets at the end of the previous year.

It provides an indicator of an insurer’s ability to increase its assets through its underwriting,

marketing, and investment operations.

Both very low and very high rates of asset growth can be of supervisory concern. Benchmarks

for supervisory concern will depend on the rates of growth of the economy and of the

insurance market overall, along with the rates of return available on investments. A typical

range for the ratio is between ‐5% and 20%.

Low or negative rates of growth in total assets might arise because of poor claims results, high

levels of surrenders or withdrawals from savings products, loss of business to competitors, high

expenses, poor investment results, or large dividend payments to shareholders.

High rates of growth in total assets might be generated by high levels of sales, particularly of

savings products, exceptional underwriting results, or favorable investment results. They might

also arise from delays in the payment of claims (perhaps accompanied by under‐provisioning),

revaluation of assets such as real estate, or the raising of capital by the insurer. Accordingly, the

underlying causes of unexpected levels of growth in total assets, whether positive or negative,

should be investigated.

5.08 Gross written premium / sum insured

This indicator is calculated as the gross written premium divided by the sum insured. It is

expressed as a multiple of the local currency units (CU), for example, X CU per 1,000 CU of sum

insured, rather than in percentage terms.

The premium as a proportion of total sums insured may give an indication of the average policy

charge and, all other things being equal, will rise as prices increase. The ratio will vary

significantly with the type of business written by the insurer, so it should be calculated by class

of business. It is likely to be less reliable for small portfolios or more customized business lines

such as commercial business or reinsurance.

Price levels can be subject to cycles that reflect periods when there is more or less pressure to

compete to maintain and grow premium volumes. Costs of insurance can also change in

response to such widely varying factors as weather conditions, crime rates, the nature of safety

or security equipment in general use, or the extent to which laws are enforced. Market analysis

can provide insight on such factors.

Lower price levels will impact profitability to the extent that the insurer is not able to reduce

costs, particularly through the effect of fixed costs. An insurer may have simply found that it has

had to reduce prices to remain competitive, which will result in profitability being adversely

impacted. However, an insurer may be able to reduce its prices by reducing risk that it holds,

for example, by increasing the excess or deductibles on claims that it incorporates in its policies.

5.09 Gross written premium / number of policies

This indicator is calculated as the gross written premium divided by the number of policies. It is

expressed in the local currency units (CU), for example, X CU per policy, rather than in

percentage terms.

The average premium per policy may give an indication of the market segment targeted by an

insurer. For example, a high ratio for individual life insurance might indicate that the insurer is

targeting high‐income consumers and a low ratio that it is focused on microinsurance. All other

things being equal, the ratio will rise as prices increase. The ratio will vary significantly with the

type of business written by the insurer, so it should be calculated by class of business. It is likely

to be less reliable for small portfolios or more customized business lines such as commercial

business or reinsurance.

One situation where this indicator is particularly useful is when the policy terms and conditions

and coverage are largely defined and uniform. Such a situation may exist with respect to

compulsory third‐party liability insurance for motor accidents where the policy benefits may be

set out in the law. As such, each policy provides identical cover, so the basic cost is somewhat

generic.

5.10 Complaint index

This indicator is calculated as the ratio of an insurer’s market share with respect to complaints

to its market share with respect to gross written premium. The market share with respect to

complaints is the ratio of the number of complaints against the insurer, as recorded by the

supervisor or an ombudsman (or both), to the total number of complaints against all insurers.

For example, if there have been 10 complaints against an insurer and 100 complaints against all

insurers, then the numerator is 10%. If the insurer’s market share with respect to gross written

premium is 20%, then the complaint index is 50%.

The complaint index provides an indicator of the extent to which an insurer treats its customers

fairly. The lower the ratio the less an insurer’s customers have complained about how they

have been treated. Ratios materially higher than 100% should generally trigger investigation by

the supervisor.

Some classes of business are more likely than others to result in complaints. Therefore, the mix

of an insurer’s business should be considered in interpreting the results. If data is available and

there are sufficient complaints to make the data credible, it can be useful to calculate this

indicator by class of business.

5.11 Pay‐out ratio

This indicator is calculated as the ratio of an insurer’s dividends to its shareholders (or in the

case of an insurer operating on a branch basis, transfers to its head office) to the net income of

the insurer after tax.

It shows how much of the insurer’s net income is being distributed to shareholders instead

being added to retained earnings within the insurer (or retained as assets within the branch)

and building its capital. Some supervisors would consider a pay‐out ratio of 40% or more to be

of concern.

A high ratio may indicate that the level of dividends might not be supported by profits or might

be unsustainable in the future. It may indicate that the board is being pressured by

shareholders (or branch management is being pressured by the head office) to make high

payouts, which could compromise the financial strength of the insurer.

A low ratio may cause shareholders to be concerned that they are not being sufficiently

rewarded and to wonder whether retained capital is being put to effective use.

This indicator should be considered along with the current and prospective adequacy of the

insurer’s capital, the trend and stability of its net income, and the sources of its net income. For

example, if much of the net income of an insurer has been earned from non‐cash items such as

unrealized gains on investments and changes in actuarial assumptions, a high pay‐out ratio

would be inappropriate. If an insurer has accumulated losses (in other words, negative retained

earnings) or does not meet capital adequacy requirements, a pay‐out ratio of more than 0%

would usually be considered inappropriate (if not illegal).

5.12 Board composition

This indicator is calculated as the ratio of the number of unaffiliated board members to the

total number of board members. Unaffiliated board members are those who are not members

of senior management of the insurer or entities related to the insurer, such as other companies

in a group of which it is a member. If the legislation of a jurisdiction prescribes composition

requirements, such as the need for some independent directors, the criteria set out in

legislation should be applied.

Board composition should be diverse in many respects, such as expertise and gender, to help

ensure robust oversight. This indicator measures just one aspect of diversity, the balance

between members whose interests might be more aligned with those of management and

those who might bring a more independent perspective.

A higher ratio indicates a more diverse board, in terms of affiliation. Thresholds for supervisory

concern might be established based on the composition requirements prescribed by legislation,

if any, or the practices prevailing in the financial sector of the jurisdiction more generally.

However, a ratio of 50% or more would generally be considered desirable.

6. Earnings

6.01 Claims ratio

This indicator is calculated as the ratio of net incurred claims to net earned premium. In both

the numerator and the denominator, amounts include both business underwritten directly by

the insurer and reinsurance assumed from other insurers, reduced by premiums ceded to and

claims recovered from reinsurers, respectively. The ratio can vary significantly with the type of

business written by the insurer, so it should be calculated by class of business. The claims ratio

is a more reliable indicator for non‐life insurers than for life insurers, because the claims on

non‐life insurance products are typically more directly related to the premiums earned in a year

than are those on long‐term life insurance products. For classes where the amount of business

is small, it is reasonable to expect that the result will be more volatile or extreme.

The claims ratio (or loss ratio) is a longstanding indicator of profitability and underwriting

quality. Claims costs have a significant influence on the profitability of the business that an

insurer has written. Claims costs are influenced by both the number and the size of claims and

the extent that they are less (or more) than was anticipated in the premiums charged.

Both very low and high claims ratios can be of supervisory concern. Thresholds for supervisory

concern will depend on the class of business and the competitiveness of the insurance market.

Thresholds can vary considerably, with lower thresholds ranging from 20% to 50% and upper

thresholds from 50% to more than 100%.

Where the ratio is high, this indicates that premium rates are too low for the level of risk or that

the claims experience has deteriorated. Either way, the insurer’s profitability will be

endangered.

Even where the ratio is low, this may be of supervisory interest. If an insurer writes particularly

profitable business, then there may be a question as to whether it can do so indefinitely. In

some cases, it is reasonable to expect that it will, due to a specialization in the way that the

insurer markets or manages the product. In other situations, management might need to

develop strategies to respond to increased competition or guard against loss of advantage.

Supervisors might ask the insurer about the strategies it has to maintain its favorable situation

and what actions it will consider should the profitability of this business come under market

pressure.

From a market conduct perspective, a low claims ratio raises the possibility that an insurer’s

products have been priced too high to provide reasonable value to its policyholders, or that

claims are being unfairly adjudicated.

As both the incurred claims and the earned premium values are functions of provisions (for

claims and unearned premiums respectively), then any change in the manner that provisioning

is determined will also influence the ratio.

6.02 Gross claims ratio

This indicator is calculated as the ratio of gross incurred claims to gross earned premium. In

both the numerator and the denominator, amounts include both business underwritten directly

by the insurer and reinsurance assumed from other insurers. The ratio can vary significantly

with the type of business written by the insurer, so it should be calculated by class of business.

The claims ratio is a more reliable indicator for non‐life insurers than for life insurers, because

the claims on non‐life insurance products are typically more directly related to the premiums

earned in a year than are those on long‐term life insurance products.

The same factors are relevant to the interpretation of this indicator as for the net claims ratio.

However, because this indicator ignores the effects of reinsurance ceded, it helps in assessing

the underlying profitability of the business underwritten directly by the insurer or assumed

from other insurers. Even more so than for the net claims ratio, where reinsurance helps to

smooth the claims experience, for classes where the amount of business is small, it is

reasonable to expect that the result will be more volatile or extreme.

The claims ratio (or loss ratio) is a longstanding indicator of profitability and underwriting

quality. Claims costs have a significant influence on the profitability of the business that an

insurer has written. Claims costs are influenced by both the number and the size of claims and

the extent that they are less (or more) than was anticipated in the premiums charged.

Both very low and high claims ratios can be of supervisory concern. Thresholds for supervisory

concern will depend on the class of business and the competitiveness of the insurance market.

Thresholds can vary considerably, with lower thresholds ranging from 20% to 50% and upper

thresholds from 50% to more than 100%.

Where the ratio is high, this indicates that premium rates are too low for the level of risk or that

the claims experience has deteriorated. Either way, the insurer’s profitability will be

endangered.

Even where the ratio is low, this may be of supervisory interest. If an insurer writes particularly

profitable business, then there may be a question as to whether it can do so indefinitely. In

some cases, it is reasonable to expect that it will, due to a specialization in the way that the

insurer markets or manages the product. In other situations, management might need to

develop strategies to respond to increased competition or guard against loss of advantage.

Supervisors might ask the insurer about the strategies it has to maintain its favorable situation

and what actions it will consider should the profitability of this business come under market

pressure.

From a market conduct perspective, a low claims ratio raises the possibility that an insurer’s

products have been priced too high to provide reasonable value to its policyholders, or that

claims are being unfairly adjudicated.

As both the incurred claims and the earned premium values are functions of provisions (for

claims and unearned premiums respectively), then any change in the manner that provisioning

is determined will also influence the ratio.

6.03 Expense ratio

This indicator is calculated as the ratio of expenses to net earned premium. The expenses

should be reduced by reinsurance commissions, which are often shown as an item of income in

the financial statement. The expense ratio is a more reliable indicator for non‐life insurers than

for life insurers, because the expenses on non‐life insurance products are typically more directly

related to the premiums earned in a year than are those on long‐term life insurance products,

on which expenses are sometimes heavily weighted to the early policy years. The expense ratio

can also be calculated based on gross earned premium, in which case the expenses would not

be reduced by reinsurance commissions.

A significant influence on profit performance of an insurer is the level of expenses associated

with the administration of its business. The conventional approach to measure the level of

expenses has been the expense ratio.

Both very low and high expense ratios can be of supervisory concern. Thresholds for

supervisory concern will depend on the class of business and the competitiveness of the

insurance market. Thresholds can vary considerably, with lower thresholds ranging from 10% to

25% and upper thresholds as high as 90%.

Higher ratios indicate that the business is cost‐intensive or that the insurer is less efficient. Life

insurers that are growing rapidly and selling products with heavy expenses in the early years

might also show higher expense ratios.

Larger insurers and smaller insurers can be expected to show different ratios due to economies

of scale and the influence of fixed costs. However, this is not always the case, as the ratio also

reflects management’s ability to manage costs effectively. In general, where an insurer is

growing, it should have a progressively declining expense ratio. This will not always be

observed, and an indication of poor expense management ultimately raises concerns.

For a particular insurer, the expense ratio might differ by class of business. There may be a valid

reason for this, but it is reasonable to check the allocation of expenses by examining the more

detailed breakdown of expenses that may be provided in the supporting accounts. A very low

expense ratio might indicate an inappropriate allocation of expenses or insufficient expenditure

to enable proper administration of the business.

From a market conduct perspective, a high expense ratio raises the possibility that the insurer’s

products do not provide reasonable value to the policyholders, or that the insurer is competing

for business through the payment of high commissions to intermediaries.

6.04 Combined ratio [FSI Non‐Life]

This indicator is calculated as the sum of the claims ratio and the expense ratio. Although the

combined ratio can be calculated for life insurers, the calculation might not produce useful

results. This is because the life insurance claims (and increases in technical provisions) for long‐

term policies do not relate closely to the current year’s premiums, while acquisition expenses

are often higher in the early policy years. As the claims ratio and the expense ratio can be

calculated on a basis that is either net or gross of reinsurance, the combined ratio can also be

calculated on a net and gross basis.

Both very low and high combined ratios can be of supervisory concern. Thresholds for

supervisory concern will depend on the class of business and the competitiveness of the

insurance market. Thresholds can vary considerably, with lower thresholds ranging from 55% to

85% and upper thresholds as high as 110%.

Traditionally, the business philosophy of non‐life insurers had been to take on risk through the

writing of policies, lay off some of this risk through reinsurance, and then try to ensure that the

remaining retained premium is sufficient to cover claims, expenses, and make a profit. With

such a philosophy, investment returns were treated as somewhat fortuitous rather than a part

of the core operation. It is still most likely that the largest source of risk, and hence the focus of

management attention, will be on the “underwriting side” of the business. This approach gave

rise to the combined ratio, which indicates that an insurer is making underwriting losses where

the combined ratio is more than 100%. But it should not be making losses overall at this level,

because investments should be contributing to its earnings. Consequently, in a competitive

market, it is not unusual for the combined ratios to be slightly above 100%. However, there is

cause for supervisory concern where combined ratios exceed 100% by a substantial margin.

Prolonged triple‐digit combined ratios, in an environment of low or volatile investment yields,

signal a drain on capital and the prospect of solvency problems.

From a market conduct perspective, a very low combined ratio raises the possibility that the

insurer’s products do not provide reasonable value to the policyholders. It might also indicate

an inappropriate allocation of expenses or insufficient expenditure to enable proper

administration of the business.

6.05 Investment income ratio

This indicator is calculated as the ratio of investment income (net of investment expenses but

gross of tax) to net earned premium. It should not be confused with the net yield on

investments, which uses average invested assets in the denominator. Although the investment

income ratio can be calculated for life insurers, the calculation might not produce useful results.

This is because the assets accumulated under long‐term policies, and the investment income

that they generate, do not relate closely to the net earned premium of a particular year.

This indicator measures the contribution of investments to profitability in a manner comparable

to the combined ratio used to measure the contribution of underwriting operations. The return

that the insurer is able to extract from the investment of funds is often a significant element of

profit performance. For non‐life insurance, the investment income ratio typically ranges from

2% to 10%.

It can be important to investigate both the actual result from the investments as well as the

components of this result.

In unusual cases, the assets relating to some or all of the reinsurance may be invested by the

ceding insurer, and the treatment of the investment income and the assets in these situations

should be understood.

In many cases, investment income is not allocated to classes of business within an insurer’s

portfolio, so the inclusion of investment income in the analysis is more common at the level of

the insurer in total. For more globally calculated ratios, the addition of allowances for tax and

other items as well as expenses and other income that are not attributable to a particular class

of business is also more relevant.

6.06 Operating ratio

The operating ratio is calculated as the combined ratio minus the investment income ratio. To

reduce the potential effects of year‐to‐year volatility on the analysis, some supervisors,

including those in the USA, use a two‐year overall operating ratio.

The operating ratio is used in recognition of the fact that investment income can make an

insurer profitable even if the combined ratio is above 100%. The usual range for the operating

ratio includes results less than 100%. An operating ratio below 100% indicates an operating

profit and a ratio result above 100% indicates an operating loss.

More generally, various profit ratios are directed at the same overall assessment of

profitability. The profit ratios reflect a measure of “reward” relative to the size of the business

in general terms. Profit ratios will, in fact, be a mixture of the performance of the business

written on gross terms and the margin given away or earned through the terms of any

reinsurance. Accordingly, it may be useful to separate these influences to determine the extent

that the insurer earns margins from the business it writes separately from the effect of its

reinsurance program on these margins.

6.07 Profitability ratio

The profitability ratio is calculated using the sum of underwriting income, investment income,

and other income, minus other expenses, as the numerator and net earned premium as the

denominator. “Underwriting income” means net earned premium minus net incurred claims

minus expenses.

The profitability ratio is like the complement of the operating ratio (100% minus the operating

ratio), but the numerator includes the net of other income and other expenses. Where such

items have not been reflected in underwriting income or investment income, it provides a more

complete measure of profitability than the operating ratio. The profitability ratio can be

interpreted as a profit margin, or a form of margin‐on‐sales ratio.

The usual range for the profitability ratio includes results more than 0%.

6.08 Return on revenue

The return on revenue ratio is calculated using profits (the sum of underwriting income,

investment income, and other income, minus other expenses) as the numerator and total

revenue (the sum of net earned premium, investment income, and other income) as the

denominator.

The return on revenue is similar to the profitability ratio, but the denominator includes

investment income and other income. It can be interpreted as a profit margin on all of the

revenue an insurer is able to generate.

6.09 Revisions to technical provisions / technical provisions

For life insurers with long‐term products, the claims ratio can provide misleading information

regarding profitability. A more reliable indicator might be the revisions to the prior year’s

technical provisions divided by the current year’s technical provisions. This is effectively a

charge to current profits due to deviations of recent experience and current expectations of the

future from previous actuarial assumptions. This indicator is also relevant for non‐life insurers,

whose technical provisions might also be revised.

Information regarding the amount of and reasons for revisions to the prior year’s technical

provisions would typically be available in the actuary’s report.

A low ratio, whether negative or positive, would generally not be cause for supervisory concern.

However, if a low ratio reflects large but offsetting revisions, this might indicate manipulation

of the provisioning, perhaps in response to pressure by management.

A large negative ratio indicates a weakening of technical provisions, the justification for which

should be investigated.

A large positive ratio indicates a strengthening of technical provisions. Reasons for such

strengthening might include the correction of errors, the deterioration of experience, or the

revision of previous assumptions to less optimistic levels.

6.10 Nominal net investment yield

The nominal net investment yield indicator is annual income of an insurer on its investment

portfolio, net of investment expenses, as a percentage of the average amount of invested

assets. The investment yield is calculated net of investment expenses but gross of tax, using

book values of invested assets. If the book values are not based on marking assets to market,

care should be taken when making comparisons with market rates of return.

Investment yield is calculated as net investment income earned divided by average cash and

invested assets, or 200 * [G / (A + B + C + D – E – F – G)], where:

A = total cash and invested assets, current year

B = total cash and invested assets, prior year

C = investment income due and accrued, current year

D = investment income due and accrued, prior year

E = borrowed money, current year

F = borrowed money, prior year

G = net investment income earned

The net investment income earned will have several components. These will be investment

income (such as interest and dividends), the contribution from realized gains or losses, and (in

the case of assets marked to market) the contribution from unrealized gains or losses. In a book

value accounting environment, the realization of investment gains adds to profit in the

accounting period that the assets are sold. In a market value environment, both realized and

unrealized gains come into the profit result. The result is reduced by investment expenses.

In either case, it is useful to determine how much of the investment yield has come from each

source, in order to examine the trends and consider the likely prospects for their contribution

to the future investment yields of the insurer. Accordingly, it can also be useful to calculate the

rate of return on a net (of tax) basis and using market values, with the investment income

element defined to include or separate investment income and realized and unrealized gains, as

is relevant, and using total assets.

It is useful to calculate averages of this indicator over periods of five and ten years, to help

assess longer‐term performance of the insurer in managing its investments.

Low yields might be caused by large investments in bank deposits, speculative investments,

investments in related parties, investments in real estate for the insurer’s own use, significant

interest payments on borrowed money, or high investment expenses.

High yields might be caused by investments in high‐risk instruments or extraordinary dividend

payments from subsidiaries.

Benchmarks for supervisory concern will depend on the conditions in the investment markets

and the economy more generally. In general, insurers should be able to generate investment

yields higher than the rates paid by banks on deposits and higher than the rate of inflation,

even after investment expenses. Insurers that are unable to regularly generate investment

yields higher than the discount rates assumed when calculating their technical provisions could

suffer significant losses.

6.11 Real net investment yield

The real net investment yield is calculated by subtracting the inflation rate from the nominal

net investment yield. It provides the percentage of annual income on an investment portfolio,

net of both investment expenses and the inflation rate.

It is useful to calculate averages of this indicator over periods of five and ten years, to help

assess longer‐term performance of the insurer in managing its investments.

Benchmarks for supervisory concern will depend on the conditions in the investment markets

and the economy more generally. In general, insurers should be able to generate investment

yields higher than the rates paid by banks on deposits and higher than the rate of inflation,

even after investment expenses. This indicator shows the extent to which the net investment

yield exceeded the rate of inflation.

6.12 Return on equity (ROE) [FSI]

Return on equity is calculated as the ratio of net income after tax to the average value of capital

over the same period. In calculating the ratio, care needs to be taken that the average

(weighted) capital is used in the calculation. This is particularly the case where there have been

capital movements during the year. Capital can be determined as total assets minus total

liabilities. It can also be useful to calculate an indicator using available capital determined in

accordance with the risk‐based capital adequacy requirement of the jurisdiction.

Return on equity is a profitability indicator that is intended to measure an insurer’s efficiency in

using its capital. The return on equity reflects the level of capital that the shareholders have

subscribed, and the return directed at them. As a result, profit is usually taken as net income

after tax.

The same indicator can be calculated for both life and non‐life insurers, and the results might


(Note: for banks, the IMF has specified the use of pre‐tax income.) A significant change in the

indicator for a particular insurer might indicate a significant change in its business model, which

would warrant further analysis and enquiry.

Both very low and very high returns on equity can be of supervisory concern. Very low returns

indicate an insurer’s inability to use its financial resources to generate reasonable profits. Very

high returns might indicate that an insurer’s profits are unsustainable or result from abuse of

market power, such as monopoly pricing. Thresholds for supervisory concern will depend on

the competitiveness of the insurance market. Thresholds can vary considerably, with lower

thresholds ranging from 0% to 20% and upper thresholds from 15% to as much as 50%.

6.13 Earnings per employee

This indicator is calculated as the ratio of the net income after tax to the number of employees.

The result is expressed in local currency units. The number of employees included in the

denominator should be appropriately matched to the earnings included in the numerator; for

example, if the earnings relate only to business within the local jurisdiction then only

employees whose activities relate to that business should be included.

This profitability indicator is a measure of an insurer’s efficiency in using its staff to generate

earnings, which is likely to be correlated with general management soundness. A low ratio

could flag potential problems in key areas, including the management of insurance and

investment risks and the management of expenses.



A significant change in the indicator for a particular insurer might indicate a significant change

in its business model, which would warrant further analysis and enquiry.

6.14 Return on assets (ROA) [FSI Life]

Return on assets is calculated as the ratio of net income after tax to the average value of total

assets over the same period. In calculating the ratio, care needs to be taken that the average

value of assets is used in the calculation. This is particularly the case where there have been

significant changes in the assets during the year.

This profitability indicator is a measure of an insurer’s efficiency in using its assets to generate

earnings. A low ratio could flag potential problems in key areas, including the management of

insurance and investment risks and the management of expenses.



(Note: for banks, the IMF has specified the use of pre‐tax income.) A significant change in the

indicator for a particular insurer might indicate a significant change in its business model, which

would warrant further analysis and enquiry.

Both very low and very high returns on assets can be of supervisory concern. Very low returns

indicate an insurer’s inability to use its financial resources to generate reasonable profits. Very

high returns might indicate that an insurer’s profits are unsustainable or result from abuse of

market power, such as monopoly pricing. Thresholds for supervisory concern will depend on

the competitiveness of the insurance market. Thresholds can vary considerably, with lower

thresholds ranging from 0.5% to 4% and upper thresholds from 3% to as much as 12.5%.

6.15 Policies lapsed or surrendered / policies in force at beginning of the year

This indicator is calculated as the ratio of the number of policies lapsed or surrendered during a

year to the number of policies in force at the beginning of the year. There are many other ways

to calculate lapse rates, such as focusing on lapses of policies in their first one or two years or

calculating separate indicators for lapses and for surrenders. These indicators might also be

calculated based on premiums or amounts of insurance lapsed, if the necessary data is

available.

A policy lapses when it is forfeited by the policyholder without receiving any payment from the

insurer in respect of the premiums already paid to the company in respect of the period the

policy was in force. It is different from a life insurance policy surrender, which the insurer treats

as a claim by the policyholder for which it pays the surrender value. In either case, the policy

will no longer be in force. (As an exception, some life insurance products allow for partial

surrenders, in which case the policy could continue in force at a lower level.)

Although there may be good reasons for some lapses, a lapse often means poor‐quality new

business was written. High lapse and surrender rates are a concern for the insurer because they

result in lower profits, as it will often be unable to fully recover the expenses, including

commission, it incurred in acquiring the policy. They also depress the growth of the insurer’s

premiums and assets.

High lapse rates are also of concern for the industry, because they indicate a negative public

attitude toward insurance, and for the supervisor, because they indicate a lack of proper

operational controls by the insurer.

6.16 Market value / book value

This indicator is calculated as the ratio of the total market value of an insurer’s shares to the

total book value of its shares. It is typically expressed as a ratio rather than as a percentage.

Market value is calculated by first multiplying current market price per share for each class of

shares by the number of such shares outstanding, then summing the results over all classes of

shares. It is relevant only for insurers whose shares are traded in the market. The book value of

the insurer is its net worth according to the financial statements.

This indicator is used by investors and analysts to help evaluate whether a company’s shares

are over‐ or under‐valued. An insurer whose prospects are viewed positively by the market will

tend to have a higher ratio than one whose prospects are viewed negatively. For example, if the

ratio is 2.0 then this indicates that the market believes the book value understates the value of

the insurer in light of its prospects for profitable growth. Conversely, if the ratio is less than 1.0

then this indicates that the market believes the insurer’s prospects are poor and even the book

value might deteriorate in the future. Changes in the ratio from period to period can signal

changes in the market’s assessment of an insurer’s prospects.

6.17 Price / earnings ratio

This indicator is calculated as the ratio of the total market value of an insurer’s shares to its

earnings. It is typically expressed as a ratio rather than as a percentage. Market value is

calculated by first multiplying current market price per share for each class of shares by the

number of such shares outstanding, then summing the results over all classes of shares. It is

relevant only for insurers whose shares are traded in the market. The earnings of the insurer

are its earnings after tax, according to the financial statements.




ratio for one insurer is 30.0 and that for another insurer in the same market is 10.0 then this

indicates that the market believes the prospects for profitable growth (and higher future

dividends and share prices) are much better for the first insurer than the second. Changes in

the ratio from period to period can signal changes in the market’s assessment of an insurer’s

prospects.

6.18 Price / gross written premium

This indicator is calculated as the ratio of the total market value of an insurer’s shares to gross

written premium. It is typically expressed as a ratio rather than as a percentage. Market value is

calculated by first multiplying current market price per share for each class of shares by the

number of such shares outstanding, then summing the results over all classes of shares. It is

relevant only for insurers whose shares are traded in the market.




ratio for one insurer is 3.0 and that for another insurer in the same market is 1.0 then this

indicates that the market believes the prospects for profitable growth (and higher future

dividends and share prices) are much better for the first insurer than the second. This might be

because the first insurer is considered to be likely to achieve higher profit margins on its

premiums or more rapid premium growth (or both) than the second insurer. Changes in the

ratio from period to period can signal changes in the market’s assessment of an insurer’s

prospects.

7. Liquidity and ALM

7.01 Liquid assets / current liabilities

This indicator is calculated as the ratio of liquid assets to current liabilities.

Assets that are considered liquid can vary by jurisdiction. Liquid assets should include only

those that the supervisor is particularly confident are and will remain liquid. They include cash,

demand deposits, and term deposits maturing in less than one year. Government securities are

also included, unless there are concerns about their liquidity. Some supervisors include

accounts receivable that have been outstanding for less than three months. Some supervisors

include common and preferred equities, if the markets in their jurisdiction are liquid.

Intermediaries’ balances deferred and not yet due is not a liquid asset.

Current liabilities are defined to include those liabilities that are already due or might become

due within the next year. They include accounts payable, overdrafts, and bank loans, except for

amounts payable after one year or more. Liabilities are adjusted to remove the amount of

liabilities equal to deferred intermediaries’ balances; since this is not a liquid asset, the

adjustment is made to remove the corresponding liability. Total insurance liabilities are reduced

by any liabilities that will not be payable within the next year, if data is available to enable them

to be identified. For example, such liabilities might include the portion of life insurance

technical provisions related to annuity payments due after one year or more.

This indicator is a measure of the insurer’s ability to meet short‐term obligations. It also

provides a rough indication of the possible implications for policyholders if liquidation becomes

necessary.

Low ratios are of supervisory concern. Thresholds for supervisory concern vary from ratios

below 100% to those below 150%. Too little liquidity might mean claims payments need to be

deferred.

However, too much liquidity might adversely affect investment returns. During an onsite

inspection, it may be appropriate to check the cashflow forecasting and liquidity management

practices of the insurer.

Analysis has shown that many insurers who become insolvent report decreasing liquidity ratios

in their final years. Therefore, it is important to consider the trend of this indicator, as well as

the current year result. Further analysis of an insurer with a low liquidity ratio should focus on

the adequacy of technical provisions and on proper valuation, mix, and liquidity of assets to

determine whether the insurer will be able to meet its obligations to policyholders.

7.02 Liquid assets / total liabilities

This indicator is calculated as the ratio of liquid assets to total liabilities.








Total liabilities are defined to include technical provisions and other liabilities of the insurer.

This indicator is a measure of the insurer’s ability to meet its obligations, including those that

are not expected to be payable in the short‐term.

Low ratios are of supervisory concern. Thresholds for supervisory concern are typically ratios

below 95% for non‐life insurers and below 60% for life insurers. Too little liquidity might mean

claims payments need to be deferred.

However, too much liquidity might adversely affect investment returns. During an onsite

inspection, it may be appropriate to check the cashflow forecasting and liquidity management

practices of the insurer.

Analysis has shown that many insurers who become insolvent report decreasing liquidity ratios

in their final years. Therefore, it is important to consider the trend of this indicator, as well as

the current year result. Further analysis of an insurer with a low liquidity ratio should focus on

the adequacy of technical provisions and on proper valuation, mix, and liquidity of assets to

determine whether the insurer will be able to meet its obligations to policyholders.

7.03 Liquid assets / total assets

This indicator is calculated as the ratio of liquid assets to total assets.








Total assets are defined to include cash, investments, and all other assets of the insurer.

This indicator provides a measure of the extent to which the assets of an insurer are liquid and

available to meet obligations to policyholders that might come due.

Low ratios are of supervisory concern. Thresholds for supervisory concern vary, for example,

ratios below 10% to 30%. Too little liquidity might mean claims payments need to be deferred.

However, too much liquidity might adversely affect investment returns. For example, in some

jurisdictions, bank deposits are a large share of assets, but such assets are unlikely to generate

high investment returns. During an onsite inspection, it may be appropriate to check the

cashflow forecasting and liquidity management practices of the insurer.

7.04 Liquid liabilities / total liabilities

This indicator is calculated as the ratio of liquid liabilities to total liabilities.

Liquid liabilities are defined to include those liabilities that are already due or might become

due within the next year. They include accounts payable, overdrafts, and bank loans, except for

amounts payable after one year or more. They do not include the amount of liabilities equal to

deferred intermediaries’ balances. Liquid liabilities are reduced by any liabilities that will not be

payable within the next year, if data is available to enable them to be identified. For example,

such liabilities might include the portion of life insurance technical provisions related to annuity

payments due after one year or more.

Total liabilities are defined to include technical provisions and other liabilities of the insurer.

This indicator provides a measure of the extent to which the liabilities of an insurer are already

due or might become due in the near future.

Another measure of the timing of future liabilities is their duration, which can be compared to

the duration of the assets; see indicator 7.06.

7.05 Net open foreign exchange position / capital

This indicator is calculated as the ratio of the net open foreign exchange position to capital. The

net open foreign exchange position is calculated by first converting the values of all assets and

liabilities denominated in foreign currencies to local currency units, then subtracting the total of

the converted liabilities from the total of the converted assets. Capital can be determined as

total assets minus total liabilities. It is also useful to calculate the indicator separately for each

foreign currency in which an insurer has a material level of assets or liabilities.

This indicator provides a measure of an insurer’s exposure to foreign exchange risks. It uses any

mismatch of foreign currency asset and liability positions to assess the vulnerability of the

insurer to exchange rate movements.

In many of the jurisdictions where insurers may issue policies denominated in a foreign

currency, they are required to have assets denominated in a particular foreign currency not less

than the policyholder liabilities in that same currency.

If some of the foreign currency exposures relate to the same counterparty, the nature of the

exposures should be examined to consider whether netting is appropriate in assessing the

foreign exchange risk. For example, if an insurer has a claim recoverable from a foreign

reinsurer, but the claim is disputed, it might not be appropriate to net the receivable against

reinsurance premiums payable to that reinsurer.

Some supervisors would consider a ratio of 100% or more to be of potential concern. However,

the volatilities of the relevant foreign exchange rates should be considered when assessing the

level of concern.

A simplified example shows the usefulness of this indicator. Consider an insurer that has assets

denominated in United States dollars (USD) of 1,000 and liabilities in USD of 2,000. Assume that

the current exchange rate is 1 USD to 10 local currency units (CU). The net open position is thus

negative 1,000 USD or negative 10,000 CU. Further assume that the insurer’s capital is 20,000

CU, which means that the indicator is negative 50%. If the local currency depreciates by 30%

versus the USD, the insurer’s capital will decrease by 15% (50% times 30%). This would

adversely affect the insurer’s ability to meet capital adequacy requirements.

7.06 Duration of assets / duration of liabilities

This indicator is calculated as the ratio of the duration of an insurer’s assets to the duration of

its liabilities. In some jurisdictions, insurers are required to report the durations of their assets

and liabilities in the regulatory returns. In some other jurisdictions, insurers are required to

report projected asset and liability cash flows in the return forms, which the supervisor can use

to calculate (or approximate) the durations.

Duration can be measured in various ways. One measurement is modified duration, which is

defined as the percentage change in the value of a series of cash flows for a 100‐basis point

change in interest rates. The formula assumes that the cash flows do not change as interest

rates change, which might not be the case.

𝑀𝑜𝑑𝑖𝑓𝑖𝑒𝑑 𝐷𝑢𝑟𝑎𝑡𝑖𝑜𝑛 ∑ 𝑡 𝐶

1 𝑖

∑ 𝐶1 𝑖

1

1 𝑖𝑘

where:

t = time at which a cash flow occurs

n = number of cash flows

Ct = cash flow at time t

i = annual interest rate

k = frequency of cash flows in a year; for example, k = 2 for semi‐annual bond coupons

This indicator measures the exposure of an insurer to losses arising from movements in interest

rates. If the ratio is less than 100%, an insurer is likely to be negatively affected by a decrease in

interest rates. If the ratio is greater than 100%, an insurer is likely to be negatively affected by

an increase in interest rates.

If the indicator is less than 100% and interest rates increase, the value of fixed income assets

will decline at a lower rate than the rate at which the value of liabilities will decline. The insurer

is therefore more likely to be positively affected by an increase in interest rates, at least in the

short‐term. Conversely, the insurer is more likely to be negatively affected by a decrease in

interest rates. For example, assume that an insurer has assets of 1,000 in local currency units

(CU), with a duration of 5 years, and liabilities of 800 CU, with a duration of 10 years. The

indicator is thus 50%. If interest rates decrease by 1%, the value of assets will increase by 5%, or

50 CU, while the value of liabilities will increase by 10%, or 80 CU. The insurer’s capital will,

therefore, decrease by 30 CU.

If the indicator is greater than 100% and interest rates increase, the value of fixed income

assets will decline at a more rapid rate than the rate at which the value of liabilities will decline.

The insurer is therefore more likely to be negatively affected by an increase in interest rates, at

least in the short‐term. Conversely, the insurer is more likely to be positively affected by a

decrease in interest rates.

It is important when reviewing the distribution of an insurer’s assets to consider the possibility

of cash outflow, as determined by the nature of the insurer’s business, and the ability of the

insurer to withstand such a cash demand without undue deterioration of the asset portfolio.

The distribution of bank deposits and bonds by maturity and cash flow projections of the

insurer are helpful in reviewing the insurer’s short‐term liquidity and longer‐term matching of

expected asset and liability cash flows.

Life insurers often issue long‐term policies with savings features and, in many cases, long‐term

interest rate guarantees. In such cases, it is particularly important that they invest for the long

term, so that they can meet their obligations to policyholders and reduce their exposure to

market risk related to changes in interest rates. Many life insurers attempt to match the

duration of their assets to the duration of their liabilities. Such matching is often done at the

level of each internally segmented fund or statutory fund. Accordingly, in addition to calculating

this indicator at the company level, it can also be useful to do so by fund. Even if there is little

duration mismatch at the company level, significant mismatches at the fund level could be of

supervisory concern.

7.07 Highest quality liquid assets / claims

This indicator is calculated as the ratio of the highest quality liquid assets to claims incurred.

Highest quality liquid assets should include only those that the supervisor is particularly

confident are and will remain liquid. They include cash, demand deposits, and term deposits

maturing in less than one year. Highly rated government and corporate fixed‐income securities

should also be included, unless there are concerns regarding their liquidity. Some supervisors

include only AAA‐rated fixed‐income securities, but others might include those with slightly

lower ratings. Accounts receivable, common and preferred equities, and intermediaries’

balances deferred and not yet due should not be included.

This indicator is a measure of the extent to which an insurer has assets readily available to pay

its claims.

Low ratios are of supervisory concern. Too little liquidity might mean claims payments need to

be deferred.

However, too much liquidity, particularly if it is achieved by investing in very low risk securities,

might adversely affect investment returns. During an onsite inspection, it may be appropriate

to check the cashflow forecasting and liquidity management practices of the insurer.

8. Subsidiaries and Related Parties

8.01 Group debtors / total assets

This indicator is calculated as the ratio of the total of amounts owed to the insurer by other

companies in the group of which it is a member to total assets.

This indicator is a measure of the extent to which assets are tied up in subsidiaries and other

companies in the group of which an insurer is a member. Collection of such debts might be

difficult to enforce because of the relationship. If the ratio is high, an insurer may experience

liquidity or solvency problems.


Supervisors should determine whether the intra‐group exposure of an insurer is consistent with

protecting the interests of policyholders. In particular, consider the nature of these amounts,

whether they are supported by contracts, and the risk implications. Transactions with

companies in the group can distort the financial position of an insurer. Problems may include

double‐ or multiple‐gearing of capital, opaque risk transfers between companies or excessive

concentration of insurance risk. Membership of a group generally alters, often considerably, an

insurer’s risk profile, its financial position, the role of its management, and its business strategy.

8.02 Related party receivables / total assets

This indicator is calculated as the ratio of the total of amounts receivable from related parties

to total assets. Related parties might include subsidiaries, other companies in a group of which

an insurer is a member, and directors and senior managers of the insurer (or members of their

families).

This indicator is a measure of the extent to which assets are tied up in receivables from related

parties. Collection of such debts might be difficult to enforce because of the relationship. If the

ratio is high, an insurer may experience liquidity or solvency problems.


Supervisors should determine whether the amounts due from related parties are consistent

with protecting the interests of policyholders. In particular, consider the nature of these

amounts, whether they are supported by contracts, and the risk implications.

In many jurisdictions, insurers are often a part of an insurance group, a financial group, or a

conglomerate. In such cases, group exposures might account for a large share of related party

exposures. Transactions with companies in the group can distort the financial position of an

insurer. Problems may include double‐ or multiple‐gearing of capital, opaque risk transfers

between companies or excessive concentration of underwriting to one client. Membership of a

group generally alters, often considerably, an insurer’s risk profile, its financial position, the role

of its management, and its business strategy.

8.03 Due to related parties / total assets

This indicator is calculated as the ratio of the total of amounts due to related parties to total

assets.

This indicator is a measure of the extent to which an insurer is trading with related parties and

the claim that such parties have against the assets of the insurer. A high ratio might indicate

that the insurer is having difficulty in paying its debts when they fall due.


8.04 (Investments in related parties + related party receivables) / total assets

This indicator is calculated as the ratio of the total of amounts invested in or receivable from

related parties to total assets. Related parties might include subsidiaries, other companies in a

group of which an insurer is a member, and directors and senior managers of the insurer (or

members of their families).

This indicator is a measure of the extent to which assets are tied up in investments in related

parties and receivables from related parties. Investments in related parties might not be liquid

or available to meet policyholder obligations. Collection of related party receivables might be

difficult to enforce because of the relationship. If the ratio is high, an insurer may experience

liquidity or solvency problems, or a low investment yield.

Some supervisors would consider a ratio of 5% or more to be of concern. However, in

jurisdictions where many insurers are members of groups and investment alternatives are

limited, supervisors might be prepared to accept higher ratios (for example, 10%).

Supervisors should determine whether the amounts invested in or due from related parties are

consistent with protecting the interests of policyholders. In particular, consider the nature of

these amounts, whether they are supported by contracts, and the risk implications. For

example, large investments in related insurers might increase the overall risk to which an

insurer is subject.


conglomerate. In such cases, group exposures might account for a large share of related party

exposures. Transactions with companies in the group can distort the financial position of an

insurer. Problems may include double‐ or multiple‐gearing of capital, opaque risk transfers

between companies or excessive concentration of underwriting to one client. Membership of a

group generally alters, often considerably, an insurer’s risk profile, its financial position, the role

of its management, and its business strategy.

8.05 (Investments by related parties + due to related parties) / total assets

This indicator is calculated as the ratio of the total of amounts invested in the insurer by related

parties and amounts due to related parties to total assets. Related parties might include

subsidiaries, other companies in a group of which an insurer is a member, and directors and

senior managers of the insurer (or members of their families).

This indicator is a measure of the extent to which an insurer is trading with related parties and

the current or potential claim that such parties have against the assets of the insurer. A high

ratio might indicate that the insurer is having difficulty in paying its debts when they fall due. If

the ratio is high, the insurer might face pressure from related parties to make repayments or to

pay interest or dividends on the debts and amounts such parties have invested, which could

compromise its ability to meet obligations to policyholders.


8.06 (Revenues from related parties + expenditures to related parties) / (total revenues + total

expenditures)

This indicator is calculated as the ratio of the total of an insurer’s revenues from and

expenditures to related parties to its total revenues from and expenditures to all parties.

This indicator is a measure of the extent to which an insurer’s business activities relate to

transactions with related parties. The purpose of combining income and expense items is to

minimize the potential distortion of transactions with related parties on preferential or

detrimental terms and conditions.



conglomerate. In such cases, intra‐group transactions might account for a large share of related

party transactions. Transactions with companies in the group can distort the financial position

of an insurer. Problems may include double‐ or multiple‐gearing of capital, opaque risk

transfers between companies or excessive concentration of underwriting to one client.

Membership of a group generally alters, often considerably, an insurer’s risk profile, its financial

position, the role of its management, and its business strategy.

8.07 Group (gross written premium + paid claims) / total (gross written premium + paid

claims)

This indicator is calculated as the ratio of an insurer’s gross written premium from and claims

paid to group companies, compared to its total gross written premium from and claims paid to

all parties.

This indicator is a measure of the extent to which an insurer’s insurance activities relate to

business written on other companies in its group. The purpose of combining income and

expense items is to minimize the potential distortion of underwriting insurance on group

companies on preferential or detrimental terms and conditions.



conglomerate. Insurance business with companies in the group can distort the financial position

of an insurer. Problems may include opaque risk transfers between companies or excessive

concentration of underwriting to one client. Membership of a group generally alters, often

considerably, an insurer’s risk profile, its financial position, the role of its management, and its

business strategy.

8.08 Related party (gross written premium + paid claims) / total (gross written premium + paid

claims)

This indicator is calculated as the ratio of an insurer’s gross written premium from and claims

paid to related parties, compared to its total gross written premium from and claims paid to all

parties.

This indicator is a measure of the extent to which an insurer’s insurance activities relate to

business written on related parties. The purpose of combining income and expense items is to

minimize the potential distortion of underwriting insurance on related parties on preferential

or detrimental terms and conditions.



conglomerate. In such cases, intra‐group insurance business might account for a large share of

related party insurance business. Insurance business with related parties can distort the

financial position of an insurer. Problems may include opaque risk transfers or excessive

concentration of underwriting to one client. Membership of a group generally alters, often

considerably, an insurer’s risk profile, its financial position, the role of its management, and its

business strategy.

9. Industry‐wide

9.01 Assets / total financial system assets [FSI]

This indicator is calculated as the ratio of the total assets of insurers to the total assets of the

financial system. The latter is the total of financial assets owned by deposit‐taking institutions,

other financial corporations, nonfinancial corporations, households, the government, and the

central bank. Many jurisdictions report data on total financial system assets to the IMF, which is

available at www.data.imf.org .

This indicator provides a measure of the relative importance of insurers within the domestic

financial system.

9.02 Assets / gross domestic product [FSI]

This indicator is calculated as the ratio of the total assets of insurers to gross domestic product.

It measures the importance of insurers compared to the size of the economy. Many

jurisdictions report data on gross domestic product to the IMF, which is available at

www.data.imf.org .

This indicator provides a measure of the relative importance of insurers compared to the size of

the economy.

9.03 Penetration

Penetration is calculated as the ratio of gross written premiums in the insurance market to

gross domestic product. Insurance penetration is usually calculated separately for the life and

non‐life sectors. Comparative information for many countries and regions is published annually

by Swiss Re Sigma, which is available at https://www.swissre.com/institute/research/sigma‐

research.html . In the Sigma statistics, health insurance is treated as non‐life insurance. Many

jurisdictions report data on gross domestic product to the IMF, which is available at

www.data.imf.org .

This indicator provides a measure of market development. In general, the higher the insurance

penetration ratio, the more developed the market.

Differences in the value of this indicator between the most and least developed markets are

striking. The values range from less than 1% for some African and Asian countries to more than

10% (South Africa, Switzerland, and the United Kingdom, among other countries).

Penetration ratios can also differ because of market characteristics other than simply the level

of development. For example, in jurisdictions where pensions are funded through life

insurance, penetration may be higher than in other jurisdictions with similar levels of market

development and wealth where this is not the case. The relative penetration of life insurance

and non‐life insurance can also differ significantly, reflecting cultural preferences and the

existence of mandatory coverages, such as motor third‐party liability insurance, among other

things.

9.04 Density

Density is calculated as the ratio of gross written premiums in the insurance market to

population. It represents the annual per capita amount spent on purchasing insurance,

expressed in local currency units. Insurance density is usually calculated separately for the life

and non‐life sectors.

This indicator provides a measure of market development and growth. In general, the higher

the insurance density, the more developed the market.

Its value, however, does not purely reflect the levels of income and wealth but can also be

impacted by local jurisdictional and market conditions. For example, in jurisdictions where

pensions are funded through life insurance, density may be higher than in other jurisdictions

with similar levels of market development and wealth where this is not the case. The relative

density of life insurance and non‐life insurance can also differ significantly, reflecting cultural

preferences and the existence of mandatory coverages, such as motor third‐party liability

insurance, among other things.

9.05 Density ‐ in USD

This indicator is calculated as the ratio of gross written premiums in the insurance market,

converted to United States dollars (USD), to population. It represents the annual per capita

amount spent on purchasing insurance, expressed in USD. Insurance density is usually

calculated separately for the life and non‐life sectors. Comparative information for many

countries and regions is published annually by Swiss Re Sigma, which is available at

https://www.swissre.com/institute/research/sigma‐research.html . In the Sigma statistics,

health insurance is treated as non‐life insurance.

This indicator enables a relatively reliable and fair comparison of individual markets. Its

calculation needs only broadly available information (insurance market premium volume, the

exchange rate between local currency and USD, and numbers of inhabitants); therefore, it is

easily accessible. In general, the higher the insurance density, the more developed the market.

Its value, however, does not purely reflect the levels of income and wealth but can also be

impacted by local jurisdictional and market conditions. For example, in jurisdictions where

pensions are funded through life insurance, density may be higher than in other jurisdictions

with similar levels of market development and wealth where this is not the case. The relative

density of life insurance and non‐life insurance can also differ significantly, reflecting cultural

preferences and the existence of mandatory coverages, such as motor third‐party liability

insurance, among other things. Also, comparisons from year to year should take account of any

significant changes in the exchange rate between local currency and USD.

9.06 Concentration ratio

The concentration ratio is calculated as the percentage of market share owned by the largest X

companies, where X is a specified number of companies. The number chosen is often 4 or 8, but

it might be smaller if there are few insurers operating in a jurisdiction or larger if there are

many insurers. Market shares can be based on gross premium written or assets, with the

former being more commonly used for non‐life insurers and the latter for life insurers. The

concentration ratio is usually calculated separately for the life and non‐life sectors. In

jurisdictions where insurers are members of groups, it can be useful to examine the

concentration ratio on a group‐wide basis (adding the market shares of the insurers in each

group).

The concentration ratio provides a simple indicator of the extent of competition in the market.

The lower the concentration ratio, the more widespread–and usually, the better–the

competition in the market. The extent of competition might be considered using four

categories, defined as:

Perfect competition – very low concentration ratio

Monopolistic competition – concentration ratio below 40% for the 4‐firm

measurement

Oligopoly – concentration ratio above 40% for the 4‐firm measurement

Monopoly – near to 100% concentration ratio for the 4‐firm measurement.

It can also be useful to analyze the underlying market share information over time. This enables

supervisors to identify insurers that are expanding or contracting. Reasons for significant

changes should be investigated and an assessment made of whether the insurer can deal

effectively with the growth or loss in business.

9.07 Herfindahl‐Hirschman Index

The Herfindahl‐Hirschman Index (HHI) is calculated by first calculating the market share of each

insurer, expressed as a percentage. Then each of the market shares is squared, to place more

weight on the larger insurers, and the results are summed. If there are n insurers in the market,

the HHI can be expressed as:

𝐻𝐻𝐼 𝑠 𝑠 ⋯ 𝑠

where si = market share of the ith insurer, expressed as a percentage.

For example, consider a jurisdiction in which there are 10 life insurers, with respective market

shares of 35%, 25%, 10%, 10%, 5%, 5%, 5%, 2%, 2%, and 1%. Squaring the respective market

shares gives results of 1225, 625, 100, 100, 25, 25, 25, 4, 4, and 1, the sum of which is 2134. In

the same jurisdiction there are 10 non‐life insurers, with respective market shares of 20%, 20%,

20%, 9%, 9%, 7%, 7%, 3%, 3%, and 2%. Squaring the respective market shares gives results of

400, 400, 400, 81, 81, 49, 49, 9, 9, and 4, the sum of which is 1482. The life insurance sector is

significantly more concentrated than the non‐life insurance sector.

Market shares can be based on gross premium written or assets, with the former being more

commonly used for non‐life insurers and the latter for life insurers. The HHI is usually calculated

separately for the life and non‐life sectors. In jurisdictions where insurers are members of

groups, it can be useful to examine the HHI on a group‐wide basis (adding the market shares of

the insurers in each group before squaring the result). The HHI might also be examined with

respect to the market share by class of business or even by product.

The HHI provides a more complete picture of market concentration than does the

concentration ratio. Unlike the concentration ratio, the HHI will change if there is a shift in

market share among the larger insurers.

The HHI can be used to determine whether mergers are equitable to society and thus also

influence supervisory decisions. As the market concentration increases, competition and

efficiency may decrease, and the opportunities for collusion and monopoly increase. In the

United States, increases of over 100 points generally provoke scrutiny, although it may vary

case to case. The Department of Justice considers markets with indices below 1500 to be

unconcentrated, between 1500 and 2500 to be moderately concentrated, and above 2500 to

be concentrated. Applying these benchmarks to the example given above, the HHI of 2134

would indicate a moderately concentrated life insurance sector and the HHI of 1482 an

unconcentrated non‐life insurance sector.

Analysis of the HHI for the insurance sectors of many countries has shown that concentration is

typically higher for the life insurance sector (a “natural level” of 2,250) than for the non‐life

insurance sector (1,525) (see the World Bank Policy Research Paper 4578, Insurers: Too Many,

Too Few, or “Just Right”?, 2008, by Craig Thorburn

http://documents.worldbank.org/curated/en/566861468137732315/pdf/wps4578.pdf).

9.08 Assets lost during the previous 5 years / average assets

This indicator is calculated as the ratio of the total losses to consumers arising from the

insolvency of insurers or intermediaries, fraud, theft or government appropriation during the

previous five years to the average assets of insurers during that same five‐year period. Data on

losses might be compiled from variety of sources, including the records of the supervisor, the

records of policyholder protection schemes, court documents, estimates prepared by insurers

or industry associations, and reports in the media.

This indicator enables analysis of the overall security of the insurance sector for consumers. It

also provides an indication of the extent to which insurance costs might be increased by the

need for insurers to recover losses arising from fraud. Its progress over time should be

examined and comparisons might also be made with the assets lost in other financial sectors in

the jurisdiction.

9.09 Inclusion

Inclusion is calculated as the ratio of the number of people who have one or more insurance

policies to population. The number of people who have one or more insurance policies might

be determined through surveys. It might also be determined using the detailed records of the

insurers, although care would have to be taken to avoid double‐counting individuals who have

more than one insurance policy. The inclusion ratio might be calculated separately for the life

and non‐life sectors.

This indicator provides a measure of market development and accessibility. In general, the

higher the inclusion ratio, the more developed the market and the more readily insurance

services can be accessed by consumers.

The inclusion ratio might also be compared with the percentage of people who have bank

accounts or who are using formal financial services of any type.

developing insurance markets - world bank

Documents