CAS Exam 6C Fall 2018, Question 23
Study guide: Exam 6C
The AA of a federally regulated property and casualty insurance company is involved in the preparation of the internal and operating capital targets. Based on an analysis of past variability of the MCT ratio, the AA initially proposes to establish the internal target 40 points above the supervisory target capital ratio, resulting in an internal MCT target of 190%. The AA then reduces this estimate by 10 points to consider that the parent company could inject capital in case of financial distress, bringing the internal target to 180%. The AA finally proposes to use an operating target at the same level as the internal target (180%) as he believes that this level of capital is sufficient to cover the risks of the insurance company.
Describe four ways in which the AA likely did not follow the appropriate regulatory guidance and briefly describe what the appropriate action would have been in each instance.
Part a (3 points)
Answer this question and see the worked solution