What does "reduce operations" mean in the context of a company's action plan
Does "reduce operations" mean reduce operating expenses or does it mean write less business?
It looks like you're new here. If you want to get involved, click one of these buttons!
Does "reduce operations" mean reduce operating expenses or does it mean write less business?
Comments
In short, it can mean both.
I note that the wiki gives the following options as company action:
-explain how to raise needed capital
-explain how to reduce operations to save money
-explain how to reduce risks to lower RBC charges
The RBC ratio is essentially (capital you have)/(capital you need). If you reduce operations in the sense of reducing your expenses, you will have more income, which raises surplus. If you reduce operations in the sense of writing less business, your reserve and premium RBC charges will be less, reducing the denominator. Either way, you are raising your RBC ratio, which gets you out of trouble.
Graham used the terms "operations" and "risks" in the options above to relate to these two actions separately, but I think "reducing operations" can mean either of them.