CAS Exam 6C Spring 2014, Question 28
Study guide: Exam 6C
The DCAT of a federally regulated Canadian property and casualty insurer indicates the following lowest projected levels of surplus in the forecast period under the base scenario and the three most adverse scenarios.
| Scenario | Surplus ($) | MCT |
|---|---|---|
| Base | 800,000 | 200% |
| Premium risk (significantly higher than the base scenario) | 625,000 | ? |
| Policy liabilities risk (unpaid claims) | 600,000 | ? |
| Frequency and severity risk (single large claim) | 425,000 | ? |
Part a (0.5 points)
Explain whether the insurer's financial condition is satisfactory.
Part b (0.75 points)
Evaluate the likelihood of the OSFI to intervene in each adverse scenario. Assume Capital Required is the same for all scenarios.
Part c (0.5 points)
Identify two possible management actions to the premium risk scenario.
Part d (0.5 points)
Identify two possible ripple effects for the frequency and severity risk (single large claim) scenario.
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