Economic Capital Modeling in the Insurance Industry 

A solid foundation for future advantage?


Economic capital (EC) modeling has the potential to transform the way firms control risks and manage their businesses right across the global insurance industry, providing a firm foundation for success. It is only over the past 10 years, however, that insurance companies truly started to integrate EC frameworks into their operations.

If properly understood and implemented, EC frameworks provide not only a roadmap for compliance, they may provide invaluable information for risk appetite, risk management, capital allocation, pricing, underwriting and strategic decisions. But if used ineffectively, they can become expensive tick-box exercises that hamper long-term decision making. Moreover, they can mislead management into falsely believing risks are adequately covered, or force them into actions that go against sound business principles.

This survey shows that companies have embarked on a journey of continuous improvement. This includes technical aspects and methodology, but also education and communication to support wider embedding across the firm.

Unlocking the value
Growing challenges
Emerging trends
Future enhancements

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Solid foundation

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