1. (a) Explain with examples how the valuation of an organisations assets for solvency purposes may differ from the market value of the assets. [4 marks]

(b) GoneWind Ltd is a non-life insurer in the developing country of Actuaria. It sells motor insurance and property insurance policies. Its turnover and profitability have steadily increased over the past five years and it currently holds assets equal to the value of its liabilities on a market-consistent basis.

Looking to the future, the Board is worried that increasing competition in the motor insurance business could affect the profitability of GoneWind Ltd. There is also a concern that major storms are becoming more frequent in Actuaria such that GoneWind Ltd is starting to see higher and more frequent claims for weather damage on property insurance policies.

(c) Describe how a national regulator would set a risk-based solvency capital standard for non-life insurance companies in Actuaria. [9 marks]

(d) Discuss steps that the Board of GoneWind Ltd could take to manage its solvency risk. [11 marks]

[Total 24 marks]