CAS Exam 6C Fall 2013, Question 29
Study guide: Exam 6C
A federally-regulated Canadian P&C insurer's Dynamic Capital Adequacy Testing (DCAT) results as of December 31, 2012 for the three most adverse scenarios are shown below. Assume the Minimum Capital Test (MCT) ratio and surplus shown below reflect the most adverse results during the forecast period.
| Base Scenario | Frequency/Severity (Loss Ratio) | Misestimation of policy liabilities (Unpaid Claims) | Premium Volume (Decrease) | |
|---|---|---|---|---|
| MCT ratio | 229% | 157% | 137% | 200% |
| Surplus ($000s) | $400,000 | $275,000 | $240,000 | $350,000 |
Part a (0.5 points)
Describe what a base scenario is in the context of the DCAT.
Part b (0.5 points)
Determine whether or not the company is in "satisfactory financial condition." Briefly explain your answer.
Part c (0.5 points)
Briefly describe two possible ripple effects that the actuary may consider under the Premium Volume (Decrease) scenario.
Part d (0.5 points)
Briefly describe two possible management actions that the actuary may recommend under the Misestimation of Policy Liabilities scenario.
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