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Assessing the Solvency of Insurance Companies

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This volume is the fourth of a series devoted to major policy issues in insurance. It comprises an in-depth analysis on the assessment and the management of the major technical and financial risks insurance companies have to face. It responds to the growing concerns of economic, financial, political and social actors in the insurance market. It addresses the ever increasing risk exposure of insurance companies that could endanger their financial health. This book constitutes a unique reference work for the attention of both OECD countries and emerging economies.

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Analysis of the Main Risk Exposures of Insurance Companies

This risk of miscalculation is intrinsic to every insurance transaction. Premiums are set in advance, before the insurer knows what the actual cost of the services it has undertaken to provide will be. Economists call this an inversion of the normal production cycle. Even the most reasonable forecasts of expenditure on claims (number, cost, assessment of damage by the courts at the time of judgement as opposed to the date of an accident) and overhead costs may be exceeded. And because a very long time may elapse between payment of the premium by the policyholder and performance of the service promised by the insurer, the latter may in fact be insolvent without experiencing any cash flow problem, new premiums being used to pay out earlier claims...

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