CAS Exam 6C Spring 2014, Question 26
Study guide: Exam 6C
The following information is available from the December 31, 2012 P&C-1 of a federally regulated insurer. All amounts are in thousands of dollars ($000s).
Liabilities & Equity (Page 20.20)
| Item | Amount |
|---|---|
| Shares issued and paid | $100,000 |
| Contributed Surplus | $40,000 |
| Retained Earnings | $5,000 |
| Reserves | $0 |
| Accumulated Other Comprehensive Income (Loss) | $12,000 |
Minimum Capital Test (Page 30.70)
| Item | Amount |
|---|---|
| Capital Available | |
| Subordinated Indebtedness and Redeemable Preferred Shares | $0 |
| Accumulated Other Comprehensive Income (Loss) on: Available for Sale Equity Securities | $11,400 |
| Accumulated Other Comprehensive Income (Loss) on: Available for Sale Debt Securities | $600 |
| Accumulated Other Comprehensive Income (Loss) on: Foreign Currency (Net of Hedging Activities) | $0 |
| Assets with a Capital Requirement of 100% (EXCLUDES the amount calculated for unregistered reinsurers on page 70.38) | $11,000 |
| Capital Required | |
| Balance Sheet Assets | $23,500 |
| Unearned Premiums / Unpaid Claims / Premium Deficiencies | ? |
| Reinsurance Ceded to Unregistered Reinsurers | ? |
| Interest Rate Risk | $20 |
| Structured Settlements, Letters of Credit, Derivatives and other exposures | $80 |
Line specific information
| Line of business | Net Written Premium ($000s) | Net Unearned Premium ($000s) | Net Unpaid Claims ($000s) | Provision for Adverse Deviation ($000s) | Margin on unearned premium ($000s) | Margin on unpaid claims ($000s) |
|---|---|---|---|---|---|---|
| Property - Personal | $74,000 | $40,000 | $32,000 | $1,600 | 8% | 5% |
| Automobile - Liability & Personal Accident | $237,500 | $125,000 | $700,000 | $105,000 | 8% | 10% |
| Automobile – Other | $90,900 | $45,000 | $12,000 | $600 | 8% | 5% |
Reinsurance Ceded to Unregistered Reinsurers (Page 70.38)
| Name of Assuming Reinsurer | Unearned Premium Ceded to Assuming insurer ($000s) | Outstanding Losses Recoverable from assuming insurer ($000s) | Receivable from assuming insurer ($000s) | Payable to assuming insurer ($000s) | Non-owned deposits held as security from assuming insurer ($000s) | Letters of credit held as security from assuming insurer ($000s) |
|---|---|---|---|---|---|---|
| ABC Re | $1,000 | $1,500 | $400 | $0 | $3,000 | $500 |
| DEF Re | $2,500 | $2,500 | $0 | $4,000 | $1,500 | $0 |
| XYZ Re | $0 | $150 | $50 | $0 | $0 | $0 |
Other information
- Based on the Appointed Actuary's analysis, there is no premium deficiency.
- The company has determined that the Minimum Gross Capital Level test is not relevant.
- The company's internal Minimum Capital Test (MCT) target is 195%.
Calculate the MCT Ratio and briefly describe any actions the company should take based on this result.
Part a (6.75 points)
Answer this question and see the worked solution
Concepts tested
- MCT
- Capital Available
- Capital Required
- Unregistered Reinsurance
- Internal Target Capital Ratio
- Supervisory Target Capital Ratio