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Old 11-11-2017, 07:23 PM
acemanhattan acemanhattan is offline
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Default Net Premiums Written to Policyholder Surplus: Possible to be too LOW?

I understand that the higher the ratio becomes, the more reasonable it is to suspect financial insecurity on the part of the insurer. In this case, though I don't know what regulations require, I would expect governing bodies to step in.

What about the opposite case, though? What happens if, say, a company with $3B in policyholder surplus suddenly (for who knows what reason) loses 90% of its, say, 1.5M members, and suddenly has a ratio that's 10% of what it previously was? Is there any sort of mechanism in place in the industry whereby the insurer has to return the surplus to the former policyholder?

What about in the case of a Non-Profit insurer (e.g. some of the remaining Blue Cross Blue Shield non profits)?

Last edited by acemanhattan; 11-11-2017 at 08:43 PM..
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Old 11-15-2017, 12:11 PM
acemanhattan acemanhattan is offline
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Anyone?
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Old 11-15-2017, 01:08 PM
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OK, I'll give you 2 cents worth.

I have never heard of any regulator requiring distribution of surplus to a former policyholder. (Some life insurance contracts pay a terminal dividend at the time an insured life cashes in a contract, but it's not a regulatory requirement.)

I think you are looking at this backwards, however. When business declines, even gradually rather than precipitously, company management will be focusing on writing more to make up for the lost income streams. They will need that "excess" surplus to deal with the cost of bringing in more business. (Or maybe they will leave the insurance business entirely, selling off whatever inforce remains. But that's a different story.)

As for your idea that 90% of business would just go away for no known reason just doesn't seem ever likely to happen in the real world. It would take some specific problem to do that.

Note that I used to be a life insurance actuary, but I am no longer a member of any actuarial society, so my comments should be taken with a grain (or more) of salt.
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Old 11-15-2017, 01:09 PM
examsarehard examsarehard is offline
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There's no regulation requirement AFAIK, but there would be pressure from the investors/owners to deploy capital more efficiently. In your example, the company would probably return a majority of its surplus back to the owners until the expected return on capital was reasonable.
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Old 11-15-2017, 01:31 PM
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These are IMHO only.

I have been through a M&A with substantial surplus involved. The issue with returning the surplus in that case is that policy holders that contributed to the surplus over time may not be active and by returning funds, you therefore reward those currently enrolled. In the cases I have seen, the funds are put into a structure that is can be used for community benefit type activities.

For a company still standing that has 90% of it's business, I would be more worried about market stability and those folks coming back when the other market players facing financial challenges. Surplus doesn't get built overnight and large shocks in enrollment can cause financial strain. I have seen this happen as well, but it was more specific to a LOB.
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Old 11-15-2017, 01:45 PM
examsarehard examsarehard is offline
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Are most health/life companies mutual insurance companies? This isn't necessarily the case on the P&C side, but it appears to be an implicit assumption that I am missing.
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