CAS Exam 6C Fall 2018, Question 25
Study guide: Exam 6C
The following information is available for a property and casualty insurance company's MCT as at December 31, 2017. All amounts are in thousands of dollars ($000s).
| Minimum Capital Test | 2017 |
|---|---|
| Total Capital Available | 60,000 |
| Capital Required at Target: | |
| Insurance Risk | 25,000 |
| Market Risk | 12,500 |
| Credit Risk | 3,500 |
| Premiums Written in the Past 12 Months | Direct | Assumed | Ceded |
|---|---|---|---|
| Personal Property | 100,000 | 5,000 | 7,500 |
| Automobile – Liability and Personal Accident | 205,000 | 15,000 | 20,000 |
| Risk Factor | 2.5% | 1.75% | 2.5% |
Other information:
- The correlation factor between the asset risk and the insurance risk is 50%.
- The growth in gross premium written in the past 12 months is 25% and the risk factor for premium growth is 2.5%.
- The company does not have intra-group pooling arrangements.
- The risk factors 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 factor is 30%.
Part a (1.75 points)
Calculate the MCT ratio.
Part b (0.25 points)
Briefly discuss whether this company would trigger an early warning intervention from OSFI.
Part c (2 points)
Briefly discuss four ways in which the Own Risk and Solvency Assessment (ORSA) is a better management tool for the Board of Directors than the MCT.
Answer this question and see the worked solution