CAS Exam 6C Fall 2018, Question 27
Study guide: Exam 6C
A property and casualty insurance company holds the following bonds. All amounts are in thousands of dollars ($000s). Assume there is no tax impact on the balance sheet.
| Bond | Classification | Amortized value at 12/31/2016 | Market value at 12/31/2016 | Coupon received in 2017 | Amortized value at 12/31/2017 | Market value at 12/31/2017 |
|---|---|---|---|---|---|---|
| A | Held to maturity | 2,500 | 3,000 | 150 | 2,800 | 3,300 |
| B | Available for sale | 3,500 | 3,000 | 200 | 3,200 | 3,500 |
| C | Held for trading | 5,000 | 4,900 | 500 | 5,000 | 5,500 |
Part a (1 point)
Calculate the impact of holding these investments on net income and other comprehensive income in 2017.
Part b (0.75 points)
For each bond separately, briefly describe the effect of a market rate increase on the net income and other comprehensive income related to assets.
Part c (0.5 points)
Describe one advantage and one disadvantage of categorizing the bond as held-to-maturity.
Part d (0.5 points)
State the two conditions under which OSFI would allow federally licensed insurers to exercise the Fair Value Option.
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