Actuarial Notes

CAS Exam 6C Spring 2017, Question 24

Study guide: Exam 6C

The following information is available regarding a property and casualty insurance company's MCT as at December 31, 2016. All amounts are in thousands of dollars ($000s).

Minimum Capital Test

Current Period
Total Capital Available 53,000
Capital Required at Target:
Insurance Risk 21,000
Market Risk ?
Credit Risk 2,500

Operational Risk Margin

Direct premiums written in the past 12 months Assumed premiums written in the past 12 months - third party reinsurance Ceded premiums written in the past 12 months - third party reinsurance
Personal Property 90,000 2,000 3,000
Automobile – Liability and Personal Accident 182,000 5,000 11,000
Risk Factors 2.50% 1.75% 2.50%

Other information:

  • There is no transition adjustment in MCT calculations.
  • The correlation factor between the asset risk and the insurance risk is 50%.
  • The growth in gross premiums written in the past 12 months is 12%.
  • The company does not have intra-group pooling arrangements.
  • 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 8.5%. The operational risk cap does not apply.
  • The solutions of an equation of the form ax^2 + bx + c = 0 are given by

x = \frac{-b \pm \sqrt{b^2 - 4ac}}{2a}

Part a (1.5 points)

Calculate the amount of capital required for market risk that would trigger an early warning intervention from OSFI.

Part b (1.5 points)

Discuss how reinsurance agreements with unregistered reinsurers would impact the following MCT components:

  • i. Capital available
  • ii. Credit risk
  • iii. Operational risk

Part c (1 point)

Briefly describe four ways in which the Own Risk and Solvency Assessment (ORSA) is a better management tool for the Board of Directors compared to the MCT.

Part d (1 point)

Fully contrast the responsibilities of an external peer reviewer and an external auditor.

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Concepts tested

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