CAS Exam 6C Fall 2018, Question 15
Study guide: Exam 6C
The following information is available for a property and casualty insurance company as at December 31, 2017. All amounts are in thousands of dollars ($000s).
| Item | Amount |
|---|---|
| Direct unearned premium | 85,000 |
| Assumed unearned premium | 0 |
| Ceded unearned premium | 2,500 |
| Expected reinsurance premium | 2,500 |
| Selected undiscounted loss ratio (% premium) | 84.0% |
| ULAE | 2,000 |
| Maintenance expense ratio (% gross premium) | 2.5% |
| Contingent commission rate (% gross premium) | 0.0% |
| Premium liabilities risk factor | 15.0% |
| Margin required for unpaid claims | 12,000 |
| Margin required for catastrophe | 0 |
| Margin required for interest rate risk | 2,000 |
| Margin required for credit risk | 5,000 |
| Margin required for operational risk | 9,504 |
| Capital available | 80,000 |
| Long common shares exposure amount | 45,000 |
| Common shares risk factor | 30.0% |
| Foreign exchange risk factor | 10.0% |
| Discount rate | 3.0% |
| Correlation factor between asset risk margin and insurance risk margin | 50.0% |
Foreign exchange risk (30.66):
| Currency | Net Long Position |
|---|---|
| U.S. Dollar | 14,750 |
| Euro | 7,000 |
Reinsurance ceded to unregistered reinsurers (70.60B):
| Reinsurer | Unearned Premium | Outstanding Losses Recoverable | Reinsurance Receivable | Reinsurance Payable | Total Reinsurance Collateral |
|---|---|---|---|---|---|
| Reinsurer ABC | 1,500 | 1,500 | 0 | 2,000 | 1,000 |
| Reinsurer XYZ | 500 | 750 | 300 | 0 | 1,200 |
The cumulative payment pattern is as follows:
| Age (months) | 12 | 24 | 36 |
|---|---|---|---|
| % cumulative paid | 84% | 97% | 100% |
Calculate the Minimum Capital Test (MCT) ratio.
Part a (4.25 points)
Answer this question and see the worked solution
Concepts tested
- MCT
- Insurance Risk Margin
- Unregistered Reinsurance
- Diversification Credit
- Market Risk Margin
- Capital Required