CAS Exam 6C Spring 2015, Question 23
Study guide: Exam 6C
The following information is available from an insurance company as of December 31, 2014. All amounts are in thousands of dollars ($000s).
| Capital Available | ($000s) |
|---|---|
| Common Shares | 20,000 |
| Contributed Surplus | 2,500 |
| Retained earnings | 4,500 |
| Accumulated net after-tax fair value gains (losses) arising from changes in the company's own credit risk | 3,000 |
| Accumulated other comprehensive income (loss) | 4,000 |
| Earthquake reserves | 2,000 |
| Earthquake Premium Reserves (EPR) not used as part of financial resources to cover exposure | 1,000 |
| Category B instruments | 12,000 |
| Category C instruments | 2,000 |
| Interests in joint ventures with more than 10% ownership | 2,500 |
| Loans considered as capital to associates | 2,000 |
| Intangible assets, including computer software (net of eligible deferred tax liability) | 500 |
Other selected information in the Capital Required at Target:
| Capital Required at Target | ($000s) |
|---|---|
| Premium liabilities and unpaid claims | ??? |
| Catastrophes | 5,000 |
| Reinsurance ceded to unregistered insurers | ??? |
| Market risk margin | 8,000 |
| Credit risk margin | 6,000 |
| Operational risk margin | ??? |
Reinsurance Ceded to Unregistered Reinsurers
| 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) | Letter of Credit Held as Security from Assuming Insurer ($000s) |
|---|---|---|---|---|---|---|
| KLM Re | 7,000 | 5,000 | 2,000 | 4,000 | 9,000 | 3,000 |
Line Specific Information
| Line of business | Net Premium Liabilities Excl. PfAD ($000s) | Net Unpaid Claims Excl. PfAD ($000s) | Risk Factor for Premium Liabilities | Risk Factor for Unpaid Claims |
|---|---|---|---|---|
| Personal Property | 20,000 | 50,000 | 20% | 15% |
| Auto - Liability | 55,000 | 70,000 | 15% | 10% |
| Line of business | Direct Written Premium in the Past 12 Months ($000s) | Premiums Assumed in the Past 12 Months ($000s) | Premiums Ceded in the Past 12 Months ($000s) | Premium Growth in the Past 12 Months |
|---|---|---|---|---|
| Personal Property | 80,000 | 18,000 | 8,000 | 10% |
| Auto - Liability | 100,000 | 21,000 | 30,000 | 5% |
Other Information
- All non-owned deposits are AAA bonds redeemable in less than a year. They are subject to a capital factor of 0.25%.
- Letters of credit held as security from assuming unregistered reinsurers are subject to a capital factor of 0.5%.
- The company's only unregistered reinsurer is KLM Re.
- The company's only lines of business are Personal Property and Auto – Liability.
- For the purpose of calculating the operational risk, the insurance company does not have intra-group pooling arrangements and the following risk factors apply:
| Base Capital Factor | Direct Written Premium | Assumed Written Premium | Ceded Written Premium | Growth in Premium |
|---|---|---|---|---|
| 8.5% | 2.5% | 1.75% | 2.5% | 2.5% |
- There is no phase-in adjustment for capital available or for capital required.
Part a (1.25 points)
Calculate the Capital Available.
Part b (1.5 points)
Calculate the Capital Required at Target for insurance risk.
Part c (1 point)
Calculate the Capital Required at Target for operational risk.
Part d (1 point)
Calculate the reduction in Capital Required at Target for excess collateral for reinsurance ceded to unregistered reinsurer.
Part e (1 point)
Calculate the MCT ratio.
Answer this question and see the worked solution
Concepts tested
- MCT
- Capital Available
- Unregistered Reinsurance
- Operational Risk Margin
- Insurance Risk Margin
- Diversification Credit