Early Warning Systems

An early warning system provides information to insurers for monitoring their financial stability and soundness, and to regulators for identifying those insurers who may become insolvent so that early remedial actions can be taken. It normally uses a solvency measurement system, which values the excess of assets over liabilities. A dynamic solvency measurement system, which evaluates the insurers' ability to remain solvent in the future under varying conditions, is preferred over a static solvency measurement system, which determines solvency at a particular valuation date. A good early warning system should also balance the interests of consumers, policyholders, insurers, and shareholders. Keywords: dynamic solvency measurement system; early warning system; minimum continuing capital and surplus requirement; modified net premium reserves; policy liabilities; policy reserves; risk-based capital; static solvency measurement system