CAS Exam 6C Fall 2018, Question 20
Study guide: Exam 6C
The following information is available with respect to the Dynamic Capital Adequacy Test (DCAT) projections of a Canadian property and casualty insurance company. All amounts are in thousands of dollars ($000s).
| Scenario 1 | Actual 2017 | Projected 2018 | Projected 2019 | Projected 2020 | Projected 2021 | Projected 2022 |
|---|---|---|---|---|---|---|
| Net Earned Premium | 3,100 | 3,350 | 3,500 | 3,700 | 3,850 | 4,050 |
| Claims and Expenses | 3,140 | 3,320 | 3,770 | 3,780 | 4,000 | 4,300 |
| Assets | 7,720 | 7,760 | 7,890 | 8,200 | 8,490 | 8,800 |
| Liabilities | 5,675 | 5,620 | 6,100 | 6,325 | 6,570 | 6,850 |
| MCT Ratio | 231% | 232% | 181% | 175% | 170% | 170% |
| Scenario 2 | Actual 2017 | Projected 2018 | Projected 2019 | Projected 2020 | Projected 2021 | Projected 2022 |
|---|---|---|---|---|---|---|
| Net Earned Premium | 3,100 | 3,350 | 3,500 | 3,700 | 3,850 | 4,050 |
| Claims and Expenses | 3,140 | 3,320 | 3,450 | 3,560 | 3,715 | 3,950 |
| Assets | 7,720 | 7,760 | 7,780 | 8,000 | 8,375 | 8,715 |
| Liabilities | 5,675 | 5,620 | 5,790 | 6,000 | 6,225 | 6,475 |
| MCT Ratio | 231% | 232% | 233% | 234% | 235% | 237% |
Part a (0.5 points)
Justify which of the above scenarios is more likely to be a base scenario.
Part b (0.25 points)
Identify one reason why the base scenario might differ from the company's business plan.
Part c (0.75 points)
Identify and justify an event which can lead to the results shown in the adverse scenario.
Part d (0.75 points)
Identify three possible corrective management actions for the adverse scenario identified in part c. above.
Part e (0.5 points)
Briefly describe two considerations for the Appointed Actuary (AA) when selecting the standard of materiality for the DCAT analysis.
Part f (0.5 points)
Briefly describe two requirements for the insurer's financial condition to be satisfactory.
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