The concept of financial stability and the factors of its components
Financial stability is a broad concept, one of the factors of which is solvency. In addition to solvency, which is one of the determining factors of financial condition, the quality of the latter is influenced by many other factors.
The financial stability of the insurer is determined, firstly, by its solvency reserve, i.e. the amount of own funds, and secondly, the degree of protection from catastrophic accidents, i.e. quality of the insurance portfolio.
The level of inflation has a significant impact on the financial stability of insurance organizations. Inflationary processes undermine the incentives for economic growth and increasing production efficiency based on scientific and technological progress.
Firstly, there is an impact on the compliance of insurance reserves with the obligations assumed by the insurer.
Second, the impact of inflation varies depending on the duration of the insurer's obligations.
Thirdly, inflation has a huge impact on the allocation of insurance reserves. In general, in this area of activity, inflation poses the same problems for the insurer as for any other financial companies.
Fourthly, inflation affects the investment income of an insurance organization as the basis for indexing obligations.
Finally, fifthly, inflation affects the composition of the insurer's reserves. One of the most common methods of combating the outflow of policyholders during inflation is their participation in the insurer's profits.
Paid authorized capital; reasonable insurance rates; compliance with the regulatory relationship between acts and obligations of the insurer; insurance reserves and their placement are components of the financial stability of the insurer
In the new version of the Law “On the Organization of Insurance Business in the Russian Federation,” Article 25 stipulates that “insurers must have fully paid-up authorized capital, the amount of which must not be lower than the established minimum amount of authorized capital.” For insurance companies engaged in personal insurance (except for accumulative types of insurance) and property insurance, the minimum amount of authorized capital must be at least 30 million rubles. Insurance organizations engaged in personal insurance, including accumulative types of insurance, as well as property insurance, must have a minimum authorized capital of 60 million rubles.
It is traditionally believed that equity is the indicator that provides a general description of the financial stability and size of the company and serves as the main source of acquisition of non-current assets. Long-term financing is crucial for the development of a company. Depending on the chosen strategy, one or another part of equity capital can be considered as a source of covering current assets necessary for the company to carry out its statutory activities. In the theory of financial analysis, this part is called own (net) working capital.
In accordance with current legislation, insurers are required to comply with the regulatory relationships between assets and insurance liabilities assumed by them. The methodology for calculating these ratios and their standard amounts are established by the federal executive body for supervision of insurance activities. In furtherance of this requirement of the Russian Federation Law “On the Organization of Insurance Business in the Russian Federation”, by order of the Ministry of Finance of the Russian Federation dated November 2, 2001 No. 90n, the “Regulation on the procedure for calculating by insurers the standard ratio of assets and insurance liabilities assumed by them” was approved.
The instructions approved by the order of Rosstrakhnadzor stipulate that in order to ensure solvency, the amount of free assets of the insurer, calculated as the difference between the total amount of assets and the amount of its liabilities, must correspond to the standard amount, i.e. must be observed:
where A is the actual size of the insurer’s assets;
O - the actual volume of the insurer's obligations;
N - normative (i.e.
Minimum allowable size of the excess of the insurer's assets over its liabilities.
At the same time, the normative ratio between the assets of the insurer and the insurance liabilities assumed by it (the normative size of the solvency margin) is understood as the value within which the insurer, based on the specifics of the concluded contracts and the volume of accepted insurance liabilities, must have its own capital, free from any future obligations, for with the exception of the rights of claim of the founders, reduced by the amount of intangible assets and receivables whose repayment terms have expired.
In accordance with the Rules for the formation of insurance reserves for insurance other than life insurance, approved by order of the Ministry of Finance of the Russian Federation dated June 11, 2002 No. 51n with the latest amendments dated June 23, 2003. In accordance with these Rules, insurance reserves for risky types of insurance include:
Unearned premium reserve;
Loss reserves: reserve for reported but unresolved losses and reserve for occurred but unreported losses;
Stabilization reserve;
Reserve for equalization of losses for compulsory civil liability insurance of vehicle owners;
Reserve for compensation of expenses for insurance payments for compulsory civil liability insurance of vehicle owners in subsequent years;
Other insurance reserves (catastrophe reserve, loss fluctuation reserve).
Reinsurance as a financial operation that allows you to achieve financial stability
Reinsurance makes it possible to provide for all these contingencies, and therefore the need for reinsurance can be formulated as follows:
Compensation for damage based on a single risk;
Compensation for damages for one very large risk;
Compensation for damage associated with the occurrence of one catastrophic event.
Major damage can occur due to:
Addition of losses for one insured event;
Higher than average number of insurance claims;
More losses in one year, contrary to the current trend.
Reinsurance has a decisive influence on ensuring the financial stability of the insurer. Firstly, in each individual type of insurance there inevitably is a large number of very large or especially large risks that one insurance company cannot take entirely upon itself. With regard to particularly large risks, it can either limit their acceptance, taking into account its financial capabilities and go through co-insurance with other insurance companies operating in the same market, or even in different markets, or accept a large share of the risk with the expectation of transferring it part of another insurance company or reinsurance company. Which exact path the insurance company will take depends on the type of insurance chosen, but most importantly, this will allow the insurance company to better protect itself in the event of particularly large risks, reducing the level of liability compared to the obligations assumed. In other words, the “large risks” in its portfolio are reduced to a level that allows the insurance company to safely accept them.
Secondly, with the help of reinsurance, it is possible to smooth out fluctuations in the performance of an insurance company over a number of years, since the same principle of risk distribution applies in reinsurance as in insurance. An insurance company's performance in a single year may be adversely affected by either significant losses from a large number of claims resulting from a single claim or very poor performance across its entire insurance portfolio during the year. Reinsurance smooths out such fluctuations, thereby achieving stability in the performance of the insurance company over a number of years, and this is extremely important for ensuring the financial stability of the insurer.
The financial stability of insurance operations is understood as the constant balancing or excess of income over expenses in the insurance fund, formed from insurance contributions (premiums) paid by policyholders.
The basis for the financial stability of insurers is the presence of their paid-up authorized capital, insurance reserves, and a reinsurance system.
The problem of ensuring financial stability is considered in two ways: as determining the degree of probability of a shortage of funds in any year and as the ratio of income to expenses for the past tariff period.
1) To determine the degree of probability of a shortage of funds, the coefficient of Professor F.V. Konyshin is used (K) =
Where T - average tariff rate for the insurance portfolio;
P - number of insured objects.
The lower the coefficient TO, the higher the financial stability of the insurer.
Example 2. Assessing the shortage of funds using Professor Konshin’s coefficient
Initial data:
a) insurance company A has an insurance portfolio consisting of 550 concluded contracts (n = 550), for insurance company B - out of 450 (n = 450);
1
Solution. We determine Professor Konshin’s coefficient:
1) for insurance company A
KA = 
= 0,050;
for insurance company B
KB = 
= 0,053.
Conclusion: financial stability in terms of deficit of funds of insurance company A is higher than that of insurance company B (KA< КБ).
2) To assess financial stability as the ratio of income to expenses for the tariff period, use the financial stability coefficient of the Ksf insurance fund
Ksf = 
;
Where D- the amount of income for the tariff period;
3F - the amount of funds in reserve funds at the end of the tariff period;
R- the amount of expenses for the tariff period.
The higher the value of the insurance fund stability coefficient, the higher the financial stability of insurance operations.
Example 3.
1. Insurance company A has income of 200 million rubles. The amount of reserve funds at the end of the tariff period is 50 million rubles. The amount of expenses is 120 million rubles, the costs of conducting the case are 5 million rubles.
2. Insurance company B has income of 250 million rubles. The balance of funds in reserve funds is 90 million rubles. The amount of expenses is 280 million rubles, the costs of conducting the case are 10 million rubles.
Solution. We determine the financial stability coefficient of the insurance fund:
Conclusion: insurance company A is financially more stable than insurance company B.
Solvency of the insurer and determination of the standard ratio of assets and insurance liabilities assumed by it
The main sign of the financial stability of insurers is their solvency.
Solvency - This is the ability of the insurer to timely fulfill monetary obligations stipulated by law or contract to policyholders.
Solvency guarantees:
1) compliance with regulatory relationships between assets and accepted insurance liabilities;
2) reinsurance of the risks of fulfilling relevant obligations that exceed the possibility of their fulfillment by the insurer at the expense of its own funds and insurance reserves;
3) placement of insurance reserves by insurers on the terms of diversification, repayment, profitability and liquidity;
4) availability of own capital.
In accordance with the order of the Ministry of Finance of the Russian Federation dated November 2, 2001 No. 90N “On approval of the regulation on the procedure for calculating by insurers the standard ratio of assets and accepted insurance liabilities,” insurers are required to comply with the standard ratio of assets and assumed liabilities, i.e. the actual amount of free assets insurance organization (actual solvency margin) should not be less than the regulatory margin. Insurers are required to calculate the solvency margin quarterly. The actual solvency margin is calculated as the sum of the authorized (share), additional and reserve capital, retained earnings of previous years and the reporting year, reduced by the amount:
Uncovered losses of the reporting year and previous years;
Debts of shareholders (participants) for contributions to the authorized (share) capital;
Own shares purchased from shareholders;
Intangible assets;
Receivables that have expired.
The standard size of the solvency margin of a life insurance insurer is equal to the product of 5% of the life insurance reserve and the adjustment factor.
The adjustment factor is defined as the ratio of the life insurance reserve minus the share of reinsurers in the life insurance reserve to the value of the specified reserve.
If the correction factor is less than 0.85, for calculation it is taken equal to 0.85.
The standard size of the solvency margin for insurance other than life insurance is equal to the largest of the following two indicators, multiplied by the adjustment factor.
The first indicator is 16 % of the amount of insurance premiums (contributions) accrued under insurance contracts, co-insurance and contracts accepted for reinsurance, for the billing period, reduced by the amount:
Insurance premiums (contributions) returned to policyholders (reinsurers) in connection with the termination (change of conditions) of insurance contracts, co-insurance and contracts accepted for reinsurance for the billing period;
Deductions from insurance premiums (contributions) under insurance contracts, coinsurance to the reserve of preventive measures for the billing period;
Other deductions from insurance premiums (contributions) under insurance contracts, coinsurance in cases provided for by current legislation, for the billing period.
The calculation period for calculating this indicator is the year (12 months) preceding the reporting date.
The second indicator is 23% from one third of the amount:
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance, minus the amounts of proceeds associated with the implementation of the right of claim transferred to the insurer, which the insured has against the person responsible for losses compensated as a result of insurance, for the estimated period;
Changes in the reserve of declared but unresolved losses, and the reserve of occurred but undeclared losses under insurance contracts, co-insurance and contracts accepted for reinsurance, for the billing period.
The calculation period for calculating this indicator is 3 years (36 months) preceding the reporting date.
The correction factor is defined as the ratio of the sum:
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance, minus the accrued share of reinsurers in insurance payments for the billing period;
Changes in the reserve of declared but unresolved losses under insurance contracts, co-insurance and contracts accepted for reinsurance, minus changes in the share of reinsurers in the specified reserves for the billing period to the amount (not excluding the share of reinsurers):
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance for the billing period;
Changes in the reserve of declared but unresolved losses, and the reserve of occurred but undeclared losses under insurance contracts, co-insurance and contracts accepted for reinsurance for the billing period.
The calculation period is the year (12 months) preceding the reporting date.
If the correction factor is less than 0.5, then for calculation purposes it is taken equal to 0.5, if more than 1, it is taken equal to 1.
The standard size of the solvency margin of an insurer providing life insurance and non-life insurance is determined by adding the standard size of the solvency margin for life insurance and non-life insurance.
If at the end of the reporting year the actual size of the insurer's solvency margin exceeds the normative one by less than 30%, the insurer submits for approval to the Ministry of Finance of the Russian Federation as part of the annual financial statements a plan for improving the financial position.
Example 4. Calculate the ratio between the actual and standard amounts of the solvency margin for insurance company K.
To calculate the actual solvency margin, we use data from the insurer’s balance sheet as of the last reporting date (million rubles):
Authorized capital………………………………………………………………30
Reserve capital................................................ ................................2.5
Uncovered losses of the reporting year and previous years....................0.5
Company shares purchased from shareholders..................................1.5
Intangible assets................................................ ...........................0.3
Receivables that have expired 0.7
Solution.
1. Determine the actual solvency margin:
30 + 2 + 2.5 – 0.5 – 1.5 –0.3 –0.7 = 31.5 million rubles.
To calculate the standard solvency margin for life insurance, we use the following balance sheet data (million rubles):
The amount of the life insurance reserve as of the calculation date 206 The share of reinsurers in the life insurance reserve 23
2. Calculate the correction factor: 
= 0,888
3. We determine the standard size of the solvency margin for life insurance:
0.05 206 0.888 = 9.146 million rubles.
Let's calculate the standard size of the solvency margin for insurance other than life insurance.
When calculating the first indicator, we use the following balance sheet data (million rubles):
Amount of insurance premiums for insurance other than life insurance.................................... 110
Refund of insurance premiums due to termination (change of conditions)
contracts for the year preceding the settlement date. ........................................................ ............5
Deductions from insurance premiums to the reserve | preventive measures
for the year preceding the calculation date. ........................................................ ............................... 4
Other deductions from insurance premiums for the year preceding the date of calculation……1
4. We determine the first indicator for calculating the solvency margin:
0.16 (110 – 5 –4 –1) = 16 million rubles.
To calculate the second indicator, we use the following balance sheet data (million rubles):
Insurance payments for the three years preceding the date of calculation, by type
insurance other than life insurance…………………………………………..252
Receipts related to the exercise of the insurer's right to subrogation for three years,
preceding the reporting date................................................................... ........................................................ ..50
Reserve for declared but unresolved losses:
At the beginning of the three-year billing period……………………………………….20
As of the settlement date................................................... ........................................................ ......................32
At the beginning of the three-year billing period................................................... ..........................14
As of the settlement date................................................... ........................................................ .......................13
5. We determine the second indicator for calculating the solvency margin:
252 – 50 – 20 + 32 – 14 + 13
0.23 --------------- = 16.33 million rubles.
Let's calculate the correction factor based on the following data (million rubles):
Insurance payments for types of insurance other than life insurance,
for the year preceding the date of calculation………………………60
Reserve for declared but unresolved losses:
At the beginning of the accounting year................................................... ..........26
As of the settlement date………………………………………….....30
Reserve for occurred but unreported losses:
At the beginning of the accounting year…………………........................15
At the end of the billing period………………......................13
Subtotal:
60 – 26 + 30 – 15 + 13 = 62 million rubles. -
Share of reinsurers in insurance payments…………………………..25 Share of reinsurers in the reserve of declared but unresolved losses:
at the beginning of the billing period…………………………….7
At the end of the billing period…………………………….13
Share of reinsurers in the reserve of occurred but unreported losses:
At the beginning of the billing period……………………………4
At the end of the billing period……………………………3 Subtotal:
25 – 7 +13 – 4 + 3 = 30.0 million rubles.
6. The correction factor is: 
= 0,516
Let us make the final calculation of the regulatory solvency margin for insurance other than life insurance:
a) the indicator accepted for calculating the solvency margin (the largest of the values obtained when calculating the first and second indicators) - 16 million rubles;
b) correction factor - 0.516.
7. The standard solvency margin for insurance other than life insurance will be
16 0.516 = 8.256 million rubles.
Based on the obtained indicators, we will calculate the overall regulatory solvency margin:
8. The total regulatory solvency margin is equal to 9.146 + 8.256 = 17.402 million rubles.
9. The deviation of the actual solvency margin from the normative one will be
31.5 – 17.402 = 14.098 million rubles.
10. Determine the percentage of excess of the actual solvency margin:
100
= 81,02%
Conclusion: the insurer maintains the relationship between the actual and standard solvency margin, which indicates its financial stability.
Problems to solve independently
Task 1. Determine the financial result for the insurance organization from providing insurance other than life insurance.
Initial data from the financial results report for the year (thousand rubles):
Insurance premiums…………………………………......4913
Increase in the reserve of unearned bonuses………….....821
Paid damages…………………………………………...1023
Reducing loss reserves……………………………..45
Contributions to the preventive measures reserve…..96
Contributions to fire safety funds…………..…38
Costs of conducting insurance operations………………1377
Task 2. Determine the result from insurance operations other than life insurance, as well as the profitability of insurance operations and the payout ratio according to the financial results report for the reporting year of the insurance organization (thousand rubles):
Insurance premiums - total………………….....139,992
Of these transferred to reinsurers…………………..……….105135
Increase in the unearned premium reserve:
Total…………………………………………………………….40583
Increasing the share of reinsurers in the reserve…………………..25333
Accrued losses - total……………………………………...10362
Share of reinsurers…………………………………………...7286
Contributions to the reserve for preventive measures…………...3710
Contributions to fire safety funds…………..………..….949
Expenses for conducting insurance operations………………………….2561
Task 3.
Authorized capital………………………………................................24
Extra capital................................................ ...............................2
Uncovered losses of the reporting year and previous years....................0.9
Company shares purchased from shareholders..................................1.7
Intangible assets................................................ ...................2.4
Receivables that have expired 0.8
Task 4. Determine the result from life insurance operations, as well as the level of payments according to the financial results report for the reporting year of the insurance organization (thousand rubles)
Insurance premiums…………………………...………......1,848,658
Investment income……………………………………………………71,842
including:
Interest receivable……………………………..…71,842
Paid damages………………………………………….1 538571
Increase in life insurance reserve………………509,588
Expenses for conducting insurance operations……………………3470
Task 5. Swipe assessment of the shortage of funds using the coefficient of Professor F.V. Konshina
Initial data:
a) insurance company A has an insurance portfolio of 500 concluded contracts, insurance company B has 400;
b) insurance company A has an average tariff rate of 3.5 rubles. from 100 rub. insurance amount, for insurance company B - 4.0 rubles. from 100 rub. insurance amount. 1
Task 6. Determine the degree of probability of a shortage of funds using the coefficient of Professor F.V. Konshin, and draw your own conclusions.
Initial data:
a) insurance company A has an insurance portfolio of 850 concluded contracts, insurance company B has 650;
b) insurance company A has an average tariff rate of 3 rubles. from 100 rub. insurance amount, for insurance company B - 3.5 rubles. from 100 rub. insurance amount. 1
Initial data(million rubles):
Task 8. Assess the financial stability of insurance companies based on the stability of the insurance fund using the following data:
1. Insurance company A has income of 110.5 million rubles. The amount of reserve funds at the end of the tariff period is 85.0 million rubles. The amount of expenses is 86.4 million rubles, the costs of conducting the case are 15 million rubles.
2. Insurance company B has income of 18.7 million rubles. The balance in reserve funds is 16 million rubles. The amount of expenses is 11.4 million rubles, the costs of conducting the case are 1372 thousand rubles.
Task 9. Assess the financial stability of insurance companies based on the stability of the insurance fund using the following data:
1. Insurance company A has income of 112 million rubles. The amount of reserve funds at the end of the tariff period is 85.0 million rubles. The amount of expenses is 84 million rubles, the costs of conducting the case are 13 million rubles.
2. Insurance company B has income of 28 million rubles. The balance of funds in reserve funds is 26 million rubles. The amount of expenses is 9.5 million rubles, the costs of conducting the case are 1155 thousand rubles.
Problem 10. Calculate the ratio between the actual and standard amounts of the solvency margin for insurance company C.
To calculate the actual solvency margin, use data from the insurer’s balance sheet as of the last reporting date (million rubles):
Authorized capital………………………………................................22
Extra capital................................................ ...............................2
Reserve capital................................................ ................................3
Uncovered losses of the reporting year and previous years...................1,2
Company shares purchased from shareholders....................................1.5
Intangible assets................................................ ...................1.4
Receivables that have expired 0.6
Problem 11.
1. Loss from life insurance operations…………………………127,659
2. Profit from non-life insurance operations....136,723
Investment income……………………………………………………1,092
Administrative expenses…………………………………………………………......8,971
Other income………………………………………………………………………………...16
Income tax……………………………………………………………..288
Extraordinary expenses………………………………………………………..88
Define:
3) net profit.
Problem 12. The following data is available from the financial performance report of the insurance organization for the reporting year (thousand rubles):
1. Loss from life insurance operations…………………………157,666
2. Profit from non-life insurance operations....126,777
3. Other income and expenses not included in sections 1.2:
Investment income……………………………………………………1,022
Administrative expenses……………………………………………………………....…6,991
Other income………………………………………………………………………………...26
Income tax……………………………………………………………..385
Extraordinary expenses………………………………………………………….6
Define:
1) profit before tax;
2) profit from ordinary activities;
3) net profit.
Under financial stability the insurance organization understands the ability to fulfill its obligations with all its available property. Naturally, the insurer has external and internal obligations. It is customary to divide external obligations into insurance and non-insurance (other). Unless otherwise specifically stated, due to the special significance of insurance obligations, financial stability is primarily understood as the ability of the insurer to fulfill its insurance obligations 1 .
The financial stability of an insurance organization is ensured by sufficient and paid-up authorized capital, insurance reserves adequate to accepted obligations, as well as an adopted reinsurance system. The use of the reinsurance system assumes that the insurer is responsible only for those risks for which it can fulfill obligations based on its financial capabilities. The criterion for the financial stability of an insurer is usually considered to be the sufficiency of insurance reserves and its own available funds to fulfill the insurer’s obligations. The most important indicator of the financial stability of the insurer, its reliability, is solvency.
Under solvency insurance company understands its ability to fulfill its obligations at any given time. As in the case of financial stability, when assessing solvency, it is usually, unless otherwise stated, understood as its ability to meet, first of all, insurance obligations.
The condition on the insurer's solvency is more significant than the condition on financial stability, since it imposes an additional requirement on the company's assets.
_______________________
1 Recently, in the global insurance market, the practice of selling not an insurance, but a so-called financial product, which, along with insurance, includes other services of a financial and credit nature, has been increasingly developing. For this reason, the importance of other (non-insurance) obligations of an insurance organization increases, which determines when assessing its financial stability and solvency, taking into account all external obligations, and not just insurance ones. The internal obligations of an insurance organization are not particularly specific.
In addition to the fact that they must be sufficient, they must be liquid to the extent necessary to fulfill insurance obligations at any time.
Financial support for the fulfillment of obligations for insurance payments for the insurer is the formed insurance reserves, as well as own funds free from obligations, called net assets. The significance of the last element is due to the fact that insurance reserves, as a rule, are not enough to fulfill insurance obligations. This is explained primarily by the random nature of insurance payments and the fact that in its professional activities the insurer is constantly faced with technical, non-technical and investment risks (Fig. 19.3)
Since insurance reserves are calculated using special methods, and therefore their size is quite certain, assessing the solvency of an insurance organization can be reduced to assessing the sufficiency of the insurer’s own available funds (net assets), which, together with the assets covering insurance reserves, are used to fulfill insurance obligations ( Fig. 19.4)
The excess of the insurer's assets over its liabilities confirms the presence solvency margin(net assets of the insurer) - the positive difference between all assets of the insurer and its liabilities, which is used to fulfill insurance obligations in the event of insufficient insurance reserves. The essence of the current methodology for assessing the solvency of an insurance organization comes down to comparing the actual size of the solvency margin (the actual size of the insurer's net assets) with its standard size, calculated according to the data of the insurance organization being assessed in accordance with the instructional materials.
The solvency assessment is carried out in three stages.
Stage 1. Calculation of the standard size of the solvency margin (the standard value of the insurer's net assets), due to the specifics of concluded insurance contracts, as well as the volume of obligations accepted for fulfillment.
The instruction assumes an assessment of solvency for an insurance company engaged in life insurance and other types of insurance at the same time, therefore the total standard size of the solvency margin is calculated as the sum of two terms - for life insurance and types of insurance other than life insurance. For types of insurance other than life insurance, the private standard solvency margin Nrv. is calculated using the formula:Indicator P1 indicates the minimum amount of net assets that an insurance company must have based on its insurance obligations. It is calculated by the formula:
where PR is the amount of insurance premiums for the period for which solvency is assessed (usually one year) under insurance contracts, co-insurance and accepted for reinsurance, reduced by the annual amount of returned insurance premiums, deductions to the reserve of preventive measures and other deductions provided for by law.
Indicator P 2 indicates the minimum amount of net assets that an insurance company should have based on the insurance obligations it has fulfilled. It is calculated by the formula:
where SV is the sum of the average annual changes over the previous three years in loss reserves and actual insurance payments under insurance contracts, co-insurance and accepted for reinsurance, minus payments received under recourse claims.
The adjustment factor k vyp is calculated for the year preceding the reporting date as the ratio of the amount of net insurance payments (total payments minus the participation of reinsurers) and net changes in loss reserves (total changes minus the participation of reinsurers) to the total amount of insurance payments of changes in loss reserves. In the case when the actual value of the coefficient does not exceed 0.5, its value is assumed to be 0.5; if there was no reinsurance, the coefficient is 1.
For life insurance, the standard size of the NSG solvency margin is calculated using the formula:
where RSL is the life insurance reserve as of the last reporting date; k is an adjustment factor calculated as the ratio of the life insurance reserve minus the participation of reinsurers to the amount of the specified reserve. In the case when the actual value of the coefficient is less than 0.85, its value is taken equal to 0.85; if there was no reinsurance, the coefficient is 1.
The standard size of the general solvency margin H is calculated using the formula:
If a company is engaged in life insurance and other types of insurance and the calculated standard size of the solvency margin N is less than the minimum amount of the authorized capital provided for by law, N is set equal to this legally established value.
Stage 2. Determination of the actual size of the solvency margin of PLF - net assets.
According to Russian legislation, the actual size of the solvency margin, which indicates actual solvency, is calculated using the formula:
Mpf = (UK + DC + RK + NP) - (NU + ZA + AP + NA + DZP), where MC is the authorized capital; DC-additional capital; RK-reserve capital; NP - retained earnings of the reporting year and previous years, NU - uncovered losses of the reporting year and previous years; FOR - debt of shareholders (participants) for contributions to the authorized capital; AP - own shares purchased from shareholders; NA - intangible assets; DRP - overdue accounts receivable.
Stage 3. Comparison of the actual size of the solvency margin with the standard one.
If the actual solvent standard is N, i.e. if the ratio PLf ≥ N is observed, we can conclude that the insurance organization is solvent. Otherwise, control over the financial recovery of the insurer; carried out by supervisory authorities over insurance activities.
Within the European Union, solvency assessment is carried out separately for insurance companies engaged in risk types of insurance and insurance companies engaged in life insurance. The Russian Federation's accession to the WTO and the European Union presupposes, in particular, that the assessment of the solvency of Russian insurance companies should be brought into line with European and world standards.
The financial stability of an insurance company as a system that adapts to changes in the external environment has two characteristics: solvency, that is, the ability to pay off its obligations, and the presence of financial potential for development to meet possible changes in external conditions.
Solvency is the most important indicator of the reliability of an insurance company, its financial stability and, therefore, the main indicator of the company’s attractiveness to potential clients.
The financial potential of an insurance organization refers to the financial resources that are in financial circulation and used to conduct insurance operations and carry out investment activities.
The financial potential of an insurance organization consists of two main parts - own capital and attracted capital, and the attracted part of the capital largely prevails over the insurance company’s own capital.
In almost all OECD countries, except Korea, one of the conditions for issuing permission to conduct insurance activities is that the insurance company has a minimum capital, the requirements for which vary in different countries, and in EU countries they vary depending on the type of insurance1. In addition to equity capital or equivalent funds, many EU countries require an organizational fund, which is deposited for several years.
In accordance with Art. 25 of the Insurance Law guarantees the financial stability of the insurer are:
Economically justified insurance rates;
Insurance reserves sufficient to fulfill obligations under insurance, coinsurance, reinsurance, mutual insurance contracts;
Own funds;
Reinsurance.
Insurance reserves and the insurer's own funds must be provided with assets that meet the requirements of diversification, liquidity, repayment and profitability.
Own funds of insurers (with the exception of mutual insurance companies that provide insurance exclusively to their members) include authorized capital, reserve capital, additional capital, and retained earnings.
Insurers must have a fully paid-up authorized capital, the amount of which must not be lower than the minimum amount of authorized capital established by this Law.
The minimum amount of the insurer's authorized capital is determined by clause 3 of Art. 25 of the Insurance Law.
The insurer may transfer the obligations assumed by it under insurance contracts (insurance portfolio) to one insurer or several insurers (replacement of the insurer) that have licenses to carry out those types of insurance for which the insurance portfolio is transferred, and have sufficient own funds, that is, meeting the solvency requirements taking into account the newly assumed obligations. The transfer of the insurance portfolio is carried out in the manner established by the legislation of the Russian Federation.
Transfer of the insurance portfolio cannot be carried out in the following cases:
Concluding insurance contracts subject to transfer in violation of the legislation of the Russian Federation;
Failure of the insurer accepting the insurance portfolio to comply with the financial stability requirements of the insurance law;
Lack of written consent from policyholders and insured persons to replace the insurer;
Lack of indication in the license issued to the insurer accepting the insurance portfolio of the type of insurance for which the insurance contracts were concluded;
The insurer transferring the insurance portfolio does not have assets accepted to ensure insurance reserves (except in cases of insolvency (bankruptcy)).
Simultaneously with the transfer of the insurance portfolio, assets are transferred in the amount of insurance reserves corresponding to the transferred insurance liabilities.
If the insurance rules of the insurer accepting the insurance portfolio do not correspond to the insurance rules of the insurer transferring the insurance portfolio, changes to the terms of the insurance contracts must be agreed upon with the policyholder.
The sufficiency of an insurance company's own funds guarantees its solvency under two conditions: the presence of insurance reserves not lower than the standard level and the correct investment policy.
A mandatory condition for ensuring the solvency of insurance companies is compliance with a certain ratio of assets and liabilities or solvency margin.
Solvency margin is a guarantee of fulfillment of the insurer's obligations. According to the European Insurance Directives, insurers must have sufficient funds in the form of a minimum guarantee fund at the beginning of the insurance business and their own funds for conducting business, which serve as a reserve stock to meet obligations to policyholders at any time.
The works of L.A. were devoted to the issues of ensuring the solvency of insurers. Orlanyuk-Malitskaya, who laid the scientific foundations of regulatory requirements for calculating the solvency of Russian insurers.
In accordance with the “Regulations on the procedure for insurers to calculate the standard ratio of assets and insurance liabilities assumed by them” (order of the Ministry of Finance of Russia dated November 2, 2001 No. 90n, as amended dated January 14, 2005 No. 2n), the insurer’s own capital is calculated as the sum of the authorized (share), additional , reserve capital, retained earnings of the reporting year and previous years, reduced by the amount of uncovered losses of the reporting year and previous years, debt of shareholders (participants) for contributions to the authorized (joint) capital, own shares purchased from shareholders, intangible assets and receivables, whose repayment terms have expired.
The standard ratio of assets and accepted insurance liabilities is understood as the amount within which the insurer must have its own capital, free from any future obligations, with the exception of the claims of the founders, reduced by the amount of intangible assets and receivables whose repayment terms have expired. This quantity is called the actual size of the solvency margin.
The standard solvency margin for life insurance is equal to the product of 5% of the life insurance reserve and the adjustment factor.
The adjustment factor is defined as the ratio of the life insurance reserve minus the reinsurer's share in the life insurance reserve to the amount of the specified reserve. If the correction factor is less than 0.85, then for calculation it is taken equal to 0.85.
The standard size of the solvency margin for insurance other than life insurance is equal to the largest of the following two indicators, multiplied by the adjustment factor.
The first indicator is calculated on the basis of insurance premiums (contributions) for the billing period - the year (12 months) preceding the reporting date and is equal to 16% of the amount of insurance premiums (contributions) accrued under insurance contracts, coinsurance and contracts accepted for reinsurance, for the billing period. period reduced by the amount:
Insurance premiums (contributions) returned to policyholders (reinsurers) in connection with the termination (change of conditions) of insurance contracts, co-insurance and contracts accepted for reinsurance during the billing period;
Deductions of insurance premiums (contributions) under insurance contracts, coinsurance to the reserve of preventive measures for the billing period;
Deductions of insurance premiums (contributions) under insurance contracts, coinsurance in cases provided for by current legislation, for the billing period.
An insurer operating for less than 12 months takes as the calculation period for the first indicator the period from the moment it first received a license until the reporting date.
The second indicator is calculated on the basis of insurance payments for the billing period - 3 years (36 months) preceding the reporting date and is equal to 23% of one third of the amount:
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance, minus the amounts of proceeds associated with the implementation of the right of claim (recourse) transferred to the insurer, which the policyholder (insured, beneficiary) has against the person responsible for the losses , indemnified as a result of insurance, during the billing period;
An insurer operating insurance other than life insurance for less than 3 years does not calculate the second indicator.
The calculation period for calculating the correction factor is one year. The correction factor is calculated as amount ratio:
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for both reinsurance, minus the accrued share of reinsurers in insurance payments, during the billing period;
Changes in the reserve of declared, but not settled losses and the reserve of occurred, but not declared losses, under insurance contracts, co-insurance and contracts accepted for reinsurance, minus changes in the share of reinsurers in these reserves, for the billing period;
to the amount(not excluding the share of reinsurers):
Insurance payments actually made under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance during the billing period;
Changes in the reserve of declared, but not settled losses and the reserve of occurred, but not declared losses, under insurance contracts, co-insurance and contracts accepted for reinsurance, for the billing period.
If there are no insurance payments in the calculation period under insurance contracts, co-insurance and accrued under contracts accepted for reinsurance, the adjustment factor is accepted = 1.
If, according to the calculation, the correction factor is less than 0.5, then for the purposes of further calculation it is taken equal to 0.5; if greater than 1, then equal to 1.
An insurer operating for less than 12 months takes the period from the date of first obtaining a license to the reporting date as the calculation period for the adjustment factor.
If actual data on operations for a type of compulsory insurance for at least 3 years indicate stable positive financial results for each year for the specified type of insurance and if the amount of insurance premiums (contributions) for this type of insurance is at least 25% of the amount of insurance premiums ( contributions) for insurance other than life insurance, then in agreement with
The Ministry of Finance of Russia may accept interest values when calculating the first and second indicators for this type of insurance as less, but not less than two-thirds of the above values.
In this case, the standard size of the solvency margin for insurance other than life insurance is determined as the sum of the standard size of the solvency margin calculated separately for the types of compulsory insurance indicated above and other types of insurance other than life insurance.
The standard size of the solvency margin of an insurer carrying out life insurance and insurance other than life insurance is determined by adding the standard size of the solvency margin for life insurance and the standard size of the solvency margin for insurance other than life insurance
If the standard size of the insurer's solvency margin is less than the minimum amount of the authorized (share) capital established by the insurance law, then the legally established minimum amount of the authorized (share) capital is taken as the standard size of the insurer's solvency margin.
The ratio between the actual and standard solvency margins is calculated by the insurer on a quarterly basis.
The actual size of the insurer's solvency margin should not be less the standard size of the solvency margin.
If at the end of the reporting year the actual size of the insurer's solvency margin exceeded the standard solvency margin by less than 30%, the insurer is obliged to submit a plan for improving its financial position for approval by the Ministry of Finance of Russia. The approximate financial recovery plan was approved by order of the insurance supervision dated October 24, 1996 No. 02-02/21.
The calculation described above can be presented in a somewhat simplified form:
The following conditions must be met quarterly:
At the end of the year, this condition intensifies:
F ≥ 1.3 (Nl + Ni),
Where: N g – the standard size of the solvency margin for life insurance is equal to the product of the amount of reserves for life insurance by the adjustment factor K popr 〈 0.85;
Ni is the standard solvency margin for other types of insurance, equal to:
max ( 0.16(S–S rast –R pm–S oblig); 0.23 × 1/3 (Discharge + ΔРЗУ + ΔРПНУ)) × K popr, where K popr ≥ 0.5
From the analysis of the methodology for calculating solvency described above, we can conclude that with sufficiently large volumes of accepted insurance liability (accrued insurance premiums) for types of insurance other than life insurance, the first indicator of the standard size of the solvency margin will exceed the insurer’s own capital, free from any future obligations and the actual size of the insurer's solvency margin will become less than its standard size. Therefore, the external development of an insurance company due to, for example, an increase in insurance volumes must necessarily be accompanied by its internal development (increase in authorized capital, reserve capital, profit, etc.)
The value of the net assets of insurance companies created in the form of joint-stock companies, necessary to assess the adequacy of the authorized capital, is estimated according to the accounting report in the manner established by the Ministry of Finance of Russia and the Federal Commission for the Securities Market as the difference between the amount of assets accepted for calculation and the amount of liabilities accepted for calculation.
If at the end of the second and each subsequent financial year the value of the net assets of the insurance company in the form of a joint-stock company (limited liability company) turns out to be less than the authorized capital, the company is obliged to declare and register in the prescribed manner a decrease in the authorized capital in accordance with the requirements of the legislation of the Russian Federation (Article 90 and 99 of the Civil Code of the Russian Federation).
Moscow State University
Department of Risk Management and Insurance
Thesis on the topic:
Financial stability of the insurance company
Completed by: master's student
EFIOR, 2 g/o Akhmetzyanov I.R.,
Moscow – 2010
financial stability insurance company
1.1.2 The influence of the amount of own funds on the financial stability of the insurance company
1.2.1 Insurance reserves as an assessment of unfulfilled obligations
1.2.1 Types of reserves and methodology for their formation
1.2.2 Adequacy of insurance reserves
1.3 Investment policy of insurance companies.
1.3.1 Principles of organizing investment activities of insurance companies
1.3.2 Features of investment policy when carrying out various types of insurance
1.3.4 Optimization of the placement of insurance reserves
1.4 The role of reinsurance in ensuring the financial stability of an insurance company
Chapter 2. System of indicators for assessing the financial stability of an insurance company
5.1 Liquidity indicators
5.2 Indicators of dependence on reinsurers
5.3 Investment performance indicators
5.4 Indicators of financial performance of the insurance company
Chapter 3. Financial recovery of the insurer in the event of a decrease in solvency
Conclusion
List of sources and literature
Annex 1.
Introduction
Modern Russian society cannot be imagined without a widely developed insurance system, since the insurance institution is one of the most important forms of joint protection of society from adverse events that may occur in the life and activities of its citizens. From this point of view, society is extremely interested in the financial reliability of insurance companies, failure to fulfill their obligations can lead to dire economic and social consequences for the entire society. All this gives the task of ensuring financial stability a macroeconomic aspect.
Although the problem of financial stability is currently relevant for the entire Russian market as a whole, the peculiarities of the circulation of funds of an insurance company, which is based on the category of risk, require a special approach to guarantees of financial stability, and to the methodology and criteria for its assessment.
The problem of the financial stability of an insurance company arose in connection with the transition to market relations and the formation of a civilized insurance market in Russia, therefore it has not received sufficient attention in the domestic literature. In most cases, it was considered from the point of view of individual factors contributing to the successful functioning of an insurance company in the market. At the same time, experts did not have a consensus on the issues being studied. In such conditions, insurance companies often resolved these issues at an empirical level, which could not but have a negative impact on the financial position of these companies.
Thus, based on the needs of practice, the analysis of problems of financial stability of the insurer (hereinafter referred to as FUS), to which this work is devoted, seems extremely relevant.
However, solving these problems requires consideration of a wide range of issues in the economics of the insurance business, which cannot be done within the framework of one work. In this regard, the purpose of this work is defined by the author as considering those factors of ensuring financial stability, from the point of view of their interdependence and complementarity, which are enshrined in Article 25 of the Law of the Russian Federation “On the organization of insurance business in the Russian Federation”. It stipulates that “the basis for the financial stability of insurers is the presence of their paid-up authorized capital and insurance reserves, as well as a reinsurance system.” In addition to these factors that provide FUS, the work includes a subchapter devoted to studying the role of another factor - the placement of the insurer's assets.
The scope of the work includes analysis of issues related to the formation of insurance reserves; determining the degree of adequacy of the insurance company's equity capital; studying the basic principles of the insurer's investment activities; establishing the role of reinsurance in providing FUS; consideration of a system of indicators that allows assessing the financial condition of the insurance company and, finally, determining one of the options for the financial recovery of the insurance company in the event of a decrease in solvency.
Thus, the purpose and objectives of this work determine its structure.
It consists of three chapters, the first studying the factors that have a decisive influence on the financial stability of the insurer, respectively: equity capital, insurance reserves, investment policy and reinsurance. The second chapter is devoted to indicators for assessing the financial condition of an insurance company, and expenses - the process of financial recovery of an insurance company in the event of a decrease in solvency.
Before moving on to considering the factors of financial stability of the insurer, it would be advisable to define the concepts of financial stability, solvency and liquidity.
Solvency is understood as, firstly, the ability of a business entity to fulfill its financial obligations to other market entities, and, secondly, it is sometimes used as a synonym for liquidity. However, liquidity can be more accurately defined as the ability of an enterprise to pay off urgent obligations. Solvency is the company’s ability to pay both claims that have already been made and those obligations that have not yet come due.
Concerning financial stability, then it can be defined as the ability of the insurer to fulfill its obligations under insurance contracts when exposed to unfavorable factors or changes in economic conditions.
Although the current Federal Law of the Russian Federation “On Insolvency (Bankruptcy)” defines solvency as the ability to pay obligations and an enterprise, in accordance with this, is declared insolvent if it does not pay its obligations within 3 months, it seems more true that solvency must be ensured taking into account all the features of the insurance business at any time.
When indicators of both liquidity and solvency are studied, it is assumed that the enterprise is in some stable environment and that all other parameters are also known and stable. However, the insurance company makes commitments for the future based on past experience. And here no most accurate, well-founded prediction can be 100% correct. Moreover, the insurer undertakes obligations, the fulfillment of which must occur either after a sufficiently large period of time, or the duration and amount of which are unknown and which are determined using the theory of probability.
In other words, if any other enterprise knows when and how much it needs to pay its business partners, or in what amount and within what time frame it must repay the loan and pay interest on it, then the insurance company knows the timing and extent of its obligations to policyholders very well. high degree of tolerance.
Because of this, what is important in insurance activities is not just the company’s ability to pay its obligations, but the ability to fulfill them in the event of any unfavorable change in the situation, in the worst case scenario for the insurer.
Solvency is a particular manifestation of financial stability, since it reflects its ability to pay obligations under “normal” conditions. From this point of view, it is important to emphasize the difference in the assessment of factors influencing the real financial condition of the insurance company and solvency as a qualitative characteristic of this condition. For example, an increase in the volume of insurance premiums from the point of view of solvency is just an increase in insurance liabilities, but for the real financial stability of the insurer, this also means an increase in resources for investment activities, a potential source of profit, portfolio growth, and therefore the possibility of distributing damage, etc.
The significance of the problem of ensuring solvency is confirmed by the fact that the limits of its fluctuation are fixed at the state level both in the EU countries and in Russia. For the purposes of analysis, it is important to consider the EU concept of the solvency of insurance organizations, as defined in the First Directive (dated 07.24.73 with subsequent additions and amendments).
According to this directive, every insurance company must have:
1. Technical reserves corresponding to the obligations assumed under the contracts.
2. Solvency reserve as an additional financial guarantee. The reserve must be free of any obligations.
3. A guarantee fund consisting of property free from obligations in the amount of up to 1/3 of the solvency reserve. This fund is created to ensure that the solvency reserve does not fall in the process of activity below a threshold that poses a danger to the financial stability of the insurance company.
