CAS Exam 6C Fall 2017, Question 22
Study guide: Exam 6C
The results of the Dynamic Capital Adequacy Testing (DCAT) are summarized below for two federally-regulated property and casualty insurance companies. Assume that the selected scenarios are the most adverse ones during the DCAT forecast period for each company and that the MCT ratio listed is the worst result throughout each forecast period.
| Company A | Base Scenario | Adverse Scenario 1 | Adverse Scenario 2 | Adverse Scenario 3 |
|---|---|---|---|---|
| MCT Ratio | 145% | 115% | 125% | 135% |
| Equity ($000s) | 200,000 | 150,000 | 165,000 | 170,000 |
| Company B | Base Scenario | Adverse Scenario 1 | Adverse Scenario 2 | Adverse Scenario 3 |
|---|---|---|---|---|
| MCT Ratio | 165% | 145% | 95% | 125% |
| Equity ($000s) | 250,000 | 200,000 | 120,000 | 160,000 |
Part a (1 point)
Assess whether each company's financial condition is satisfactory.
Part b (0.75 points)
Define social inflation and briefly describe its effect on the company.
Part c (0.75 points)
Identify one example of off-balance sheet risk, one ripple effect and one management action that may be considered under the Off-Balance-Sheet Risk scenario.
Answer this question and see the worked solution