Capital Modelling | Intensity Map

May 21

2 min read

Capital Modelling | Capital Intensity Map

In the previous edition, we improved the standard SCR component view by showing the capital requirement over time.

That made movement visible. But it still left an important question unanswered: if capital is increasing, where is it being consumed most intensely, and is that capital supporting business we actually want to write?

The Decision Question

Which parts of the portfolio are using the most capital relative to the return they generate?

Alternative Visual

The Capital Intensity Map brings risk, return, and materiality into one view. Each segment is plotted as a bubble: return on allocated SCR on the horizontal axis, capital intensity on the vertical axis, and premium volume as the bubble size.

This is still an actuarial simplification. But it connects the capital requirement to business choices. Segments with high capital intensity become visible immediately, especially where the return is weak or where the segment is large enough to matter.

What This Immediately Reveals

Signal	Possible interpretation
High capital intensity, weak return	Investigate pricing, underwriting appetite, reinsurance, or exit options.
High capital intensity, strong return	Profitable but capital heavy; growth may still need a capital allocation discussion.
Low capital intensity, strong return	Potentially attractive business if the result is sustainable and not under-reserved.
Large bubble in a poor zone	Material enough to affect portfolio steering, not just a segment-level curiosity.

Trade-offs & Risks

The main limitation is allocation. Segment-level capital is rarely natural, and the allocation basis must be explained.
Return metrics can be distorted by immature years, reserve movements, recoveries, or one-off large losses.
Bubble charts become hard to read if too many segments are shown, so the view should be limited to decision-relevant groupings.
The chart identifies where to investigate. It does not, by itself, explain why capital intensity is high.

Decision Boundary

Use this when...	Don't use this when...
You want to compare portfolio segments by capital use and return at the same time.	You only need to reconcile the reported SCR by risk module.
You need to identify capital-heavy segments that may need pricing, appetite, or reinsurance attention.	Segment-level capital allocation is not available or is too unreliable to explain.
You want to separate profitable-but-capital-intensive business from genuinely capital-efficient business.	The return metric is distorted by immature experience, one-off losses, or reserve movements.
You need a prioritisation view for portfolio steering discussions.	You need a full explanation of why capital intensity is high.

Once the capital-heavy segments are visible, the next question is what changed. In the next edition, we can separate movement in capital between growth, mix, reinsurance, diversification, model change, and other drivers.