London Market Monitor – 31 August 2022
Our August review of the markets and Solvency II discount rates.
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.