The Assessment of Solvency

Effectively, a non-life insurance concern may be considered to be solvent if the supervisory authorities of the country or countries in which it operates allow it to continue operating. It is of no avail to claim that, by some other criterion, the concern may be considered to be solvent; it is by reference to the controls imposed by supervisory authorities that the concern must operate. For this reason, it is apposite to consider the principles of solvency assessment in the context of the financial statements and other documents generally available to supervisory authorities, as distinct from the theoretical mathematical concepts underlying insurance operation.The primary purpose of supervision is to make sure that a concern does not enter into obligations which it will be unable to fulfil. It is thus essentially a dynamic standard, not a static one having regard only to the business already accepted, but the first requirement is nevertheless to test the concern's finances in relation to the business already on the books. If this test is passed, then at least it is known that the concern will not be depending upon profits from new business and renewals to help to meet the cost of its present liabilities.This raises the question of what controls might be applied to new business. The two main types of control possible are on the extent of selection of risks permitted, and on the premiums to be charged, but while it may be feasible for such controls to be applied to the home portfolio of a particular class, for example motor vehicle insurance, it is difficult to envisage the operation of such controls internationally in, for example, the marine, aviation and transit class.