The brief. Before the 2024 revision of the ordinance, the SST ratio was computed as
(RBC − MVM) / (TC − MVM), with the market value margin added into target capital. Today it is the plain quotientRBC / TC, with the margin sitting as a liability. Show what actually changed.
Take Company A from the easy drill, and be careful about which RBC you are given:
| CHF m | |
|---|---|
| Aggregated standalone risk capitals (incl. diversification) | 555 |
| Market value margin | 90 |
| Assets minus liabilities before deducting the margin | 980 |
Your tasks
- Compute the ratio the old way: target capital including the margin, and the margin removed from both sides.
- Compute the ratio the current way: target capital excluding the margin, and risk-bearing capital already net of it.
- Compare the two numbers. Explain, in one sentence, why they come out as they do.
- Now suppose the reinsurer's reserves develop a much longer tail, so the margin doubles to 180 while every other input is unchanged. Recompute both ratios. Which definition makes the effect of a longer run-off easier to see, and why?
Watch out for
The phrase "risk-bearing capital" means different things in the two worlds. Getting this drill right is mostly about not mixing them.