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🏛️ '''Individual capital assessment (ICA)''' is a firm-specific evaluation of the capital an [[Definition:Insurance carrier | insurer]] or [[Definition:Lloyd's syndicate | Lloyd's syndicate]] needs to hold in order to remain solvent under a range of adverse scenarios, above and beyond any minimum [[Definition:Regulatory capital | regulatory capital]] requirement. Originating in the UK prudential framework and closely associated with the [[Definition:Prudential Regulation Authority (PRA) | Prudential Regulation Authority]], the ICA compels each firm to quantify its own risk profile rather than relying solely on standardized capital formulas. While it has been largely superseded by [[Definition:Solvency II | Solvency II]]'s [[Definition:Own risk and solvency assessment (ORSA) | Own Risk and Solvency Assessment]] in many contexts, the concept endures as a cornerstone of risk-based supervision.

🔍 The process requires an insurer to model its material risks — [[Definition:Underwriting risk | underwriting risk]], [[Definition:Reserving risk | reserving risk]], [[Definition:Credit risk | credit risk]], [[Definition:Market risk | market risk]], and [[Definition:Operational risk | operational risk]] — and determine how much capital would be consumed if those risks crystallized simultaneously or in stressed combinations. Firms typically employ [[Definition:Stress testing | stress tests]], [[Definition:Scenario analysis | scenario analyses]], and [[Definition:Stochastic model | stochastic models]] calibrated to a confidence level (often 99.5% over one year) to arrive at their ICA figure. At [[Definition:Lloyd's of London | Lloyd's]], managing agents submit an ICA for each syndicate they operate, and Lloyd's itself benchmarks those submissions against its own [[Definition:Internal model | internal models]] to ensure consistency across the market.

📌 Getting the ICA right has direct financial consequences. If a regulator or Lloyd's determines that a firm's self-assessed capital is too low, it can impose an [[Definition:Individual capital guidance (ICG) | individual capital guidance]] add-on, effectively raising the amount of capital the firm must lock up. This constrains [[Definition:Underwriting capacity | underwriting capacity]] and reduces return on equity, so insurers invest heavily in the quality of their risk models and the governance surrounding the assessment. For [[Definition:Insurtech | insurtech]] ventures seeking authorization or for [[Definition:Managing general agent (MGA) | MGAs]] looking to demonstrate robust risk management to capacity providers, understanding the ICA framework signals seriousness about [[Definition:Capital management | capital discipline]] in a way that resonates with both regulators and [[Definition:Reinsurer | reinsurers]].

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Own risk and solvency assessment (ORSA)]]
* [[Definition:Solvency II]]
* [[Definition:Regulatory capital]]
* [[Definition:Stress testing]]
* [[Definition:Lloyd's syndicate]]
* [[Definition:Individual capital guidance (ICG)]]
{{Div col end}}

Definition:Individual capital assessment (ICA) - Revision history

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