Loss absorbency in risk-based capital frameworks

Participating (par) insurance products represent a significant portion of the life insurance business in many Asian markets. Under these risk-based capital regimes, the loss absorbing capacity attributed to the non-guaranteed benefits of par products is a key element in the overall assessment of the solvency position. Regulators have adopted different approaches in relation to the allowance for the loss absorbing capacity within par funds, which can have a significant impact on the measures of solvency calculated in each market. This e-alert provides an overview of how the different approaches to recognising loss absorbency affect headline solvency ratio measures.