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SOCIAL COSTS & SOLVENCY MARGIN , SOVEREIGN RISK : Economic Concepts And Terminologies

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SOCIAL COSTS
The costs borne by the society at large resulting from the economic activities by the firms-pollution being a prominent example.\

SOLVENCY MARGIN

The term made news in the 1970s concerning a life insurance company. The only requirement, till then, by a life insurance company was that the
value of its assets should not be less than the value of its liabilities. The regulators in many countries felt that the value of assets should exceed the value of liabilities by a certain margin. This margin which came to be known as ‘solvency margin’ became a useful device to force shareholder of a life insurance company either to keep in reserve a certain portion of the profit or to bring in additional capital if there is not sufficient profit
to meet unforeseen contigencies. The European Union developed an empirical formula taking recourse to the past experience to determine the
quantum of margin required. The IRDA has stipulated that the excess of assets (including capital) over liabilities should not be less than 150
per cent of the solvency margin arrived at by the EU formula.

SOVEREIGN RISK
The risk of a government defaulting on its debt or a loan guaranteed by it (all international loans by the private companies are basically guaranteed by the government of an economy).

BASEL III COMPLIANCE OF the PSBs & RRBs

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