All entities that retain (or assume) risk are exposed to financial uncertainty regarding the future outcomes of these risks. In order to protect itself from adverse events that may occur, a company should hold capital that is commensurate with its level of risk appetite.
Our surplus/capital adequacy studies will take an in depth look at the operations of your company as a whole, considering potential risks to both the assets and liabilities. We primarily focus on answering three questions:
- Based on management’s overall level of risk appetite, is your company maintaining prudent levels of economic capital to support its current operations?
- Does your company have any free capital which it may use to grow the business, offer dividends, invest in a portfolio with a higher risk/reward profile, etc?
- Should the company seek to grow its business, how much additional capital will be needed to support the new business?
At your request, we can also provide analyses that will explicitly address scenarios that you and your management team believe are plausible risks that pose a threat to your company. Based on our analysis, we will provide a range of appropriate levels of economic capital that the company will need to hold to sufficiently protect itself should these events become reality. This process will provide you with the necessary information to lay a foundation upon which to build a strong Enterprise Risk Management framework.