CAS Exam 6C Fall 2017, Question 20
Study guide: Exam 6C
The following information is available for a property and casualty insurance company as at December 31, 2016. All amounts are in thousands of dollars ($000s).
| Item | Capital (Margin) Required at Target |
|---|---|
| Insurance Risk Margin | |
| Premium liabilities | ? |
| Unpaid claims | ? |
| Catastrophes | 500 |
| Margin required for reinsurance ceded to unregistered reinsurers | ? |
| Market Risk Margin | |
| Interest rate risk | ? |
| Foreign exchange risk | 0 |
| Equity risk | 500 |
| Real estate risk | 40 |
| Other market risk exposures | 10 |
| Credit Risk Margin | 810 |
| Operational Risk Margin | ? |
Unpaid Claims Margin
| Item | Value |
|---|---|
| Net claim liabilities | 56,416 |
| Provisions for adverse deviation (PfAD) | 3,069 |
| Average risk factor | 14% |
| Duration | 1.51 |
Premium Liabilities Margin
| Item | Value |
|---|---|
| Net premium liabilities | 29,000 |
| PfAD | 3,000 |
| Average risk factor | 20% |
| Duration | 0.50 |
Margin Required for Unregistered Reinsurance
| Item | Value |
|---|---|
| Unearned premiums ceded | 5,000 |
| Outstanding losses recoverable | 25,000 |
| Reinsurance receivable | 800 |
| Non-owned deposits | 20,000 |
| Letters of credit | 15,000 |
There is only one reinsurer.
Assets
| Item | Value |
|---|---|
| Market value of bonds | 150,000 |
| Market value of other interest-sensitive assets | 0 |
| Duration of bonds | 1.0 |
| Risk factor | 1.25% |
Operational Risk Margin
| Item | Value | Risk Factor |
|---|---|---|
| Direct written premium in the last 12 months | 135,000 | 2.50% |
| Assumed written premiums in the last 12 months | 20,000 | 1.75% |
| Increase in gross written premiums in the last 12 months | 40,000 | n/a |
| Ceded written premiums in the last 12 months | 50,000 | 2.50% |
The correlation factor between asset risk margin and insurance risk margin is 50%.
The risk factor for premium growth beyond the threshold of 20% is 2.50%.
The risk factor applied to total capital required (before the operational risk margin and diversification credit) for the calculation of the operational risk margin is 8.50%.
Part a (1.75 points)
Calculate the margin for insurance risk.
Part b (1 point)
Calculate the margin for market risk.
Part c (0.75 points)
Calculate the margin for operational risk.
Part d (0.75 points)
Calculate the insurance company's capital required at target.
Answer this question and see the worked solution
Concepts tested
- MCT
- Insurance Risk Margin
- Market Risk Margin
- Operational Risk Margin
- Unregistered Reinsurance
- Diversification Credit
- Capital Required