Case Study

Insurance giant reduces risk-based capital by $19.4 million

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Client: A major life insurance firm

Industry: Insurance

Business need addressed: The insurer sought assistance in reviewing the company’s methodologies for valuing and categorizing its assets, to ensure the company was holding the right levels of risk-based capital

Genpact solution:
Following a thorough analysis, Genpact recommended reclassification of assets that reduced the levels of risk-based capital the insurer was required to hold

Business impact:

  • Customer satisfaction
  • Adaptation and flexibility
  • Regulatory compliance
  • Growth and scalability
  • Standardization and simplification

A major life insurance company was concerned that its asset valuations and classifications were not correct, and thus that the company was not holding the correct levels of risk-based capital for regulatory purposes. The insurance giant engaged Genpact to review the company’s methodologies for valuing and categorizing its assets, in hope it could reduce the risk-based capital the insurer was required to hold.

The client worried that its methodologies for valuing and categorizing assets were incorrect, leaving it needlessly overcapitalized

  • In recent decades, regulators have increasingly required financial institutions to set aside capital reserves that correlate to the amount of risk on the companies’ balance sheets
  • This calculation of “risk-based capital” represents the additional capital set aside over and above the normal capital to safeguard the interests of the insurer’s policyholders
  • Insurance regulators determine their solvency ratings in part based on the amount of “risk- based capital” that each insurer holds, creating incentives for these companies to make sure their risk profile is calculated correctly

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  • The client was concerned that the methodologies it used for categorizing and valuing its assets were incorrect, requiring it to hold higher amounts of risk-based capital than warranted. This, in turn, could negatively impact the client’s solvency rating with regulators

Genpact conducted a thorough review of the client’s valuation and classification methodologies

  • Genpact’s investment team supported the life insurance giant in accounting, reconciliation, and statutory reporting of various assets
  • For the statutory reporting prepared for regulators, Genpact calculated and prepared the asset valuation reserves and the risk-based capital and schedules filed quarterly and annually with the National Association of Insurance Commissioners
  • Genpact analyzed the insurer’s categorization of all investments and implemented correct categorization methods. This analysis included interpreting investment-related Statements of Statutory Accounting Principles

Business impact delivered

  • Genpact’s success reclassifying and reassessing the correct valuation of some assets enabled the insurance giant to reduce its risk-based capital requirements by $19.4 million, yielding greater compliance with regulatory requirements
  • Partnering with Genpact enabled the client to be adaptive in an evolving regulatory normal

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