The
risk adjusted rate is the difference between the minimum return that any investor will require from the stock minus the expected growth rate.
DNIR has improved its identification and quantification of key risks and imposed greater controls to mitigate and reduce the potential impact on earnings and
risk adjusted capitalisation.
EXPLORING OPPORTUNITIES TO MAKE BETTER
RISK ADJUSTED RETURNS -- XPLORING OPPORTUNITIES TO MAKE BETTER
RISK ADJUSTED RETURNS
However, the group's
risk adjusted capitalisation remains solid, thanks to its conservative operating strategies, positive reserve development and conservative investment risk.
Blended with financial models for capital valuation and allocation, business decisions are being made based on the cost of needed capital, or economic capital, and the
risk adjusted rate of return (the future value of discounted cash flows and the cost of money).
Of the approaches for adjusting for risk in discounted cash flow valuation, the most common one is the
risk adjusted discount rate approach, where we use higher discount rates to discount expected cash flows when valuing riskier assets, and lower discount rates when valuing safer assets.
"Going forward, we will continue choosing our transactions selectively, both on the debt and equity side, while seeking appropriate
risk adjusted returns."
Although Milli Re's risk-adjusted capitalisation weakened following the purchase of Anadolu shares in September 2010, AM Best considers that its current and prospective
risk adjusted capitalisation remains stable and supportive of the company's ratings.
Hudson is willing to structure transactions in a variety of different ways in order to achieve appropriate
risk adjusted returns.
* To determine economic capital, a probabilistic determination of capital gaining favor among many companies for improved and more refined approach to allocation of capital on a
risk adjusted basis.
