CAS Exam 6C Spring 2018, Question 18
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).
| Item | Amount |
|---|---|
| Total Capital Available | 59,400 |
| Capital (Margin) Required at Target | |
| Total Insurance Risk Margin | 26,700 |
| Total Market Risk Margin | 52,800 |
| Total Credit Risk Margin | 2,000 |
| Operational Risk Margin | ? |
| Less: Diversification Credit | ? |
| Total Capital (Margin) Required at Target | ? |
| 2016 | 2017 | |
|---|---|---|
| Direct Premiums Written | 96,300 | 115,500 |
| Assumed Premiums Written | 11,000 | 20,400 |
The company cedes 30% of its direct written premium to a third party reinsurer. The company has no intra-group pooling arrangements.
Part a (1.5 points)
Calculate the operational risk margin at target.
Part b (0.75 points)
Calculate the diversification credit at target.
Part c (1 point)
Based on the answers from parts a. and b. above, calculate this company's MCT ratio and determine whether it meets two important thresholds for federally-regulated property and casualty insurance companies.
Part d (0.75 points)
Fully describe the actions that insurance companies are required to take when their MCT ratio falls below their internal target ratio.
Answer this question and see the worked solution
Concepts tested
- Operational Risk Margin
- Diversification Credit
- MCT
- Supervisory Target Capital Ratio
- Internal Target Capital Ratio