CAS Exam 6C Fall 2016, Question 19
Study guide: Exam 6C
The following information from the Dynamic Capital Adequacy Testing (DCAT) analysis of a federally regulated property and casualty insurance company is available as at December 31, 2015. All amounts are in thousands of dollars ($000s).
| Scenario | Component | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| Base Scenario | MCT Ratio | 230.0% | 241.0% | 252.4% | 264.4% |
| Base Scenario | Capital | 350,000 | 385,000 | 423,500 | 465,850 |
| Frequency / Severity (Loss Ratio) | MCT Ratio | 230.0% | 190.3% | 151.2% | 170.2% |
| Frequency / Severity (Loss Ratio) | Capital | 350,000 | 285,000 | 223,500 | 265,850 |
| Misestimation of Policy Liabilities (Unpaid Claims) | MCT Ratio | 230.0% | -12.5% | 18.4% | 48.4% |
| Misestimation of Policy Liabilities (Unpaid Claims) | Capital | 350,000 | -15,000 | 23,500 | 65,850 |
| Combined Economic Scenario | MCT Ratio | 230.0% | 159.2% | 187.0% | 213.4% |
| Combined Economic Scenario | Capital | 350,000 | 135,000 | 173,500 | 215,850 |
Part a (0.5 points)
Describe the base scenario in the context of the DCAT.
Part b (0.5 points)
Determine whether the company is in satisfactory financial condition. Briefly justify your answer.
Part c (0.5 points)
Identify two possible management actions that the actuary may consider under the Frequency / Severity (Loss Ratio) scenario.
Part d (0.5 points)
Identify two possible ripple effects that the actuary may consider under the Misestimation of Policy Liabilities scenario.
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