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How do global provisions help demonstrate solvency?

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asked Nov 9, 2017 in BUS 4027W - Actuarial Risk Management by Rowan (4,010 points)

The notes say that as well as establishing provisions for each contract, we also need to make global provisions by looking at the provider's liabilities as a whole, if solvency is to be demonstrated clearly. How does this bold part tie up with the rest of the statement?

1 Answer

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answered Nov 22, 2017 by LStandaar (220 points)

It is not always sufficient for companies to establish provisions for each individual contract separately. Therefore, the company might need to set up further global provisions based on the liabilities as a whole to be more certain of solvency in most events and not just under certain circumstances. Have a look at Question 35.10 and 35.11 for examples.