Insurers are generally required to optimize economic capital to evaluate the combined effects of risk-taking activities and the impact of such activities on economic value.
By incorporating risk-based capital models into their strategic decision-making processes, insurers can help optimize capital allocation from a risk-versus-reward viewpoint, and possibly achieve competitive advantage.
True capital optimization can only occur when taking into consideration all aspects of the organization. In my next blog post, I will discuss the manner in which an organization-wide view improves the efficiency of risk-management models.
To learn more, download: Risk-Adjusted Operating Model: Transformation Strategy for Insurers.