Insurers in the South African insurance market are required to calculate an estimate of technical provisions under the Solvency Assessment and Management (SAM) framework. The estimate consists of a best estimate liability and a risk margin. This article outlines considerations in calculating the risk margin for non-life insurers. In theory, the risk margin is a well understood component of the balance sheet. In practice, different interpretations and imprecision can easily result in a six-fold difference between results for similar insurers—even before allowing for a range of simplifications and their potential misuse. The principles and analysis outlined here may be helpful in determining insurers’ approach until more guidance becomes available.
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Calculating the SAM non-life risk margin
Insurer beware: Before more guidance from South African regulators becomes available, we offer our approach to calculating the SAM non-life risk margin.