accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

, a financial condition report (FCR) is a report on the

solvency Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long- ...

condition of an

insurance company Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...

that takes into account both the current financial status, as reflected in the

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

, and an assessment of the ability of the company to survive future risk scenarios.

Risk assessment Risk assessment is a process for identifying hazards, potential (future) events which may negatively impact on individuals, assets, and/or the environment because of those hazards, their likelihood and consequences, and actions which can mitigate ...

in an FCR involves ''dynamic solvency testing'', a type of dynamic financial analysis that simulates management response to risk scenarios, to test whether a company could remain solvent in the face of deteriorating economic conditions or major disasters. Dynamic solvency testing may involve both ''deterministic projections'', based on known risks, and ''stochastic projections'' that include random risk events. FCRs are a part of the statutory reporting requirements for life insurance companies in Pakistan, Australia, New Zealand, Ghana and non-life insurance companies in Canada. FCRs are also required in the UK under the ''Financial Services and Markets Act'' of 2000 and in Ireland. While many consider FCRs a type of compliance report, they can also be useful for corporate management to identify weaknesses in risk strategy, to test diversification of risk through, e.g.,

reinsurance Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insu ...

, and to set fair market pricing for options.

References

{{reflist Financial statements Financial risk management Actuarial science