CAS Exam 6C Fall 2013, Question 26
Study guide: Exam 6C
Given the following information for an insurance company:
| Market Value ($000s) | Book Value ($000s) | Duration | |
|---|---|---|---|
| Local government bonds | $50,000 | $55,000 | 6.8 |
| Investment grade bonds | $190,000 | $178,000 | 5.6 |
| Below investment grade bonds | $30,000 | $28,000 | 3.4 |
| Non-affiliated preferred stocks | $3,500 | $3,000 | 7.6 |
| Non-affiliated common stocks | $50,000 | $42,000 | -- |
| Cash | $2,000 | $2,000 | -- |
| Receivable from agents | $1,800 | $1,800 | -- |
| Ceded assets | Balances ($000s) | Reserve Deficiency ($000s) | Rating | Capital Factor |
|---|---|---|---|---|
| Reinsurance Company A | $50,000 | $850 | A++ | 2% |
| Reinsurance Company B | $20,000 | $2,000 | A | 6% |
| Reinsurance Company C | $5,000 | $530 | B+ | 20% |
| Item | Value |
|---|---|
| Capital factor for: Receivable from agents | 5% |
| Spread of risk factor | 1.35 |
| Gross PML ($000s) | $35,000 |
| Liquid assets ($000s) | $700,000 |
| Reinsurance dependence factor | 1.25 |
| Item | Amount |
|---|---|
| Unadjusted surplus ($000s) | $78,000 |
| Adjusted surplus ($000s) | $66,000 |
| Net required capital for: | ($000s) |
|---|---|
| Fixed income securities risk | $4,577 |
| Equity securities risk | $10,842 |
| Interest rate risk | $1,839 |
| Loss & LAE reserves risk | $41,000 |
| Net premiums written risk | $18,000 |
| Business risk | $35 |
Calculate the A.M. Best's Capital Adequacy Ratio (BCAR) and briefly comment on the capital strength of the company based on the calculated ratio.
Part a (3 points)
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution