Economic capital models serve as a way for insurance companies to understand their inherent risks. This paper describes some of the key components and design choices when modeling economic capital and how these can differ across jurisdictions. The paper was commissioned and partially funded by the Society of Actuaries. Some of the key aspects discussed include:

• Whether to take a market-consistent or real-world approach to determining the balance sheet
• Which risks to include in an economic capital model
• Some of the challenges faced when measuring different types of risk drivers
• Important modeling choices for determining economic capital