Capital: it's overrated! A different perspective on the use of capital for steering purposes

Document description

Increasingly, capital seems to be at the heart of the financial management of a modern-day insurance company. Encouraged by regulators and rating agencies, firms are using their capital models and capital-based methodologies for a range of steering considerations. But risk-bearing capital mainly exists for the benefit of policyholders! This paper questions the prevailing capital-focussed steering culture, from a shareholder perspective. It homes in on pricing, risk-transfer and reserving applications. Suggestions for a more shareholder-focussed approach are offered.