Threat cost methodology beneath hearth
Insurance coverage corporations say strict rule hurts capital adequacy ratio
Insurance coverage firms are requesting that the Workplace of the Insurance coverage Fee (OIC) assessment the danger cost calculation model 2 that was applied final 12 months, citing its destructive impression on the trade’s capital adequacy ratio (CAR).
In response to the OIC web site, the trade common CAR on the finish of the third quarter of 2019 was 387% of complete threat charged for all times insurance coverage firms and 347% for non-life firms. These ratios have dropped because the risk-based capital model 2 (RBC2) was applied within the fourth quarter of 2019.
The typical CAR for all times insurance coverage corporations declined to 362% on the finish of 2019 and 295% within the first quarter this 12 months. The typical CAR for non-life insurance coverage firms dropped to 285% on the finish of 2019 and picked up barely within the first quarter of this 12 months to 304%.
Trade capital remains to be strong and exceeds the minimal CAR stage of 100% and the supervisory CAR stage of 120%.
An trade supply who requested anonymity stated the Thai rule is stricter than in different international locations.
Pichet Jiaramaneetaweesin, president of the Society of Actuaries of Thailand, stated insurance coverage corporations are dealing with declining rates of interest and authorities bond returns, a key think about calculating asset and debt obligations.
The 10-year Thai authorities bond’s yield hit a low of 0.97% in March and had risen to 1.45% as of Thursday.
Mr Pichet stated the decrease rate of interest might make the current value of debt greater, and the impression on CAR within the following quarter might be even greater if the eight-period timeframe strikes to the low-interest price.
He stated quick development of latest enterprise (new insurance coverage gross sales) additionally requires capital reserves.
Anon Vangvasu, president of the Thai Common Insurance coverage Fee, stated the impression to non-life insurance coverage within the first half of the 12 months was not as important because it was for automobile insurance coverage, which makes up 60% of complete non-life insurance coverage premiums.
Covid-19 premiums have been worth four billion baht within the first half of 2020, whereas crop insurance coverage was worth 1 billion baht.
“Not all insurers are promoting Covid-19 insurance coverage, and a few medium and small insurance coverage corporations might be affected by financial sentiment and decrease funding returns,” Mr Anon stated.
Mr Pichet stated the financial impression on the insurance coverage enterprise usually lags by about two quarters.
Chayanin Kerdpholngarm, assistant secretary-general of the OIC, stated the extent of CAR will stay unchanged.
“The RBC2 was applied solely six months in the past and a few tips are primarily based on judgement, however we’ve got some actual knowledge to run the model,” she stated.
Suthiphon Thaveechaiyagarn, secretary-general of the OIC, stated the fee’s board was to fulfill yesterday and the danger cost calculation was to be mentioned.