Risk Capital

July 09, 2007 (LBO) – At a time when the banking system is moving towards Basle II system, Sri Lanka’s insurance industry could benefit from the risk based capital (RBC) model, an international insurance professional has said. LBO: When you bring in something like RBC does it give you more flexibility to the industry?

Webber: We would argue that insurance companies should have a lot of flexibility to invest in a wide range of assets to give the best return they can for policy holders.

But equally I think when we have got a very simple capital regime then it is logical to have some restricted investment regime. As you develop a more sophisticated capital regime then you can allow people to take investment risk because you know that they will have to set capital to one side to after the risks they run on their balance sheets.

For example within Aviva’s biggest companies, we do capital assessments and we calculate the capital they require after seeing what each of its businesses has on its balance sheet.

Typically if people have just invested in cash we don’t carry out significant stress tests because it is a very low risk. If people invest in equities the numbers would vary between economies.