Capital Management
Last updated
Last updated
Amulet's capital management primarily relies on the following:
Solvency Capital Requirement ("SCR"): A key component that helps determine the minimum amount of reserves and underwriting capital required by Amulet to meet potential claim payouts. Please refer to Capital Model for more details.
Treasury Pool: Builds up PCR with PoS staking returns, revenue sharing, and other fees, conducts token buy backs, liquidity provisioning, etc.
Although Amulet is not an insurer, neither is it in the business of providing insurance, arranging insurance contracts, nor is it acting as an insurance agent, it is nonetheless appropriate and indeed desirable for Amulet to adopt the highest possible capital management standards available to manage its capital pools in the interest of the Amulet community. Amulet’s capital model will refer to EIOPA’s Solvency II regulations, a regulatory framework set out for insurance and reinsurance operators in the EU. The requirements set out by Solvency II are designed to ensure adequate protection of policyholders and beneficiaries.
Solvency II is an economic risk-based approach that assesses the “overall solvency” of insurance and reinsurance undertakings through quantitative and qualitative measures. Under Solvency II, the capital requirements are determined based on risk profiles and how such risks are managed, providing the right incentives for sound risk management practices, and securing enhanced transparency.
There are different tiers of capital requirements under Solvency II, of which the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) are critical criteria. The SCR is capital required to ensure that the company would be able to meet its obligations over the next 12 months with a probability of at least 99.5%, which limits the possibility of falling into financial ruin to less than once in 200 cases. MCR represents the threshold to correspond to an 85% probability of adequacy over 12 months and is bound between 25% and 45% of the SCR. For supervisory purposes, the SCR and MCR can be regarded as “soft” and “hard” floors.
Amulet uses SCR as the capital management standard to calculate the minimum required amount of funds set aside to pay for all potential claims considering all quantifiable risks.
The SCR calculation runs on a regular basis, and all data are calculated on-chain and shown on Amulet's website to view. As Amulet becomes more decentralized, governance token holders will have a say in the required capital requirements to adjust to current risks. When the SCR reaches its limit, the whole underwriting pool will be locked to avoid liquidity risk, ensuring a minimum of required capital is maintained in the underwriting pool.
