CAS Exam 6C Spring 2016, Question 19
Study guide: Exam 6C
The following information is available from a property and casualty insurance company's December 31, 2015 P&C-1. All amounts are in thousands of dollars ($000s).
| Income Statement Value 12 months (previous year) | Income Statement Value 12 months (current year) | |
|---|---|---|
| Direct premiums written in the past 12 months | 389,000 | 406,000 |
| Reinsurance assumed in the past 12 months - Not Intra Pool | 0 | 0 |
| Reinsurance assumed in the past 12 months - Intra Pool | 215,000 | 225,000 |
| Reinsurance ceded in the past 12 months - Not Intra Pool | 19,000 | |
| Reinsurance ceded in the past 12 months - Intra Pool | 214,000 |
| Current Period | |
|---|---|
| Insurance risk margin | 64,000 |
| Market risk margin | 40,000 |
| Credit risk margin | 3,500 |
The following risk factors are used in the calculation of operational risk:
| Risk Factor | |
|---|---|
| Direct premiums written in the past 12 months | 2.50% |
| Reinsurance assumed in the past 12 months - Not Intra Pool | 1.75% |
| Reinsurance assumed in the past 12 months - Intra Pool | 0.75% |
| Reinsurance ceded in the past 12 months - Not Intra Pool | 2.50% |
| Reinsurance ceded in the past 12 months - Intra Pool | 0.75% |
| Premium growth above 20% threshold | 2.50% |
| Capital/margin required component (balance sheet value) | 8.50% |
| Cap | 30.00% |
The correlation factor between the asset risk and the insurance risk is 50%.
Calculate the total capital (margin) required at the target level as at December 31, 2015.
Part a (2.5 points)
Answer this question and see the worked solution