CAS Exam 6C Spring 2018, Question 14
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).
| Claim Liabilities Information | |
|---|---|
| Undiscounted Unpaid Claim Liabilities | 100,000 |
| Premium Liabilities Information | |
|---|---|
| Gross Unearned Premium | 90,000 |
| Selected Undiscounted Loss Ratio (% of Premium) | 80.0% |
| Unallocated Loss Adjustment Expense (ULAE) | 3,500 |
| Maintenance Expense Ratio (% of Premium) | 2.5% |
| Discounting Information | |
|---|---|
| Claims Development Margin of Adverse Deviation (MfAD) | 9.0% |
| Interest Rate MfAD | 0.5% |
| Discount Rate | 3.0% |
Cumulative Accident Year Payment Pattern (Assume that payments are made in the middle of the year.)
| Age (Months) | % Paid |
|---|---|
| 12 | 25% |
| 24 | 50% |
| 36 | 75% |
| 48 | 100% |
The company started doing business in 2017 and does not purchase reinsurance.
The company holds a 125,000 bond portfolio which has a modified duration of 3.0 years. There are no other interest rate sensitive assets or liabilities.
Calculate the margin required at target for interest rate risk.
Part a (6.5 points)
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution
Concepts tested
- Interest Rate Risk
- Modified Duration
- Market Risk Margin
- Loss Reserve Discounting
- Margin for Adverse Deviations