CAS Exam 6C Spring 2018, Question 19

Study guide: Exam 6C

Part a (0.25 points)

Define the term "plausible adverse scenario" in the context of Dynamic Capital Adequacy Testing (DCAT).

For each of the following, propose and justify an adverse scenario that the actuary could model.

i. An insurance company has significant property exposure in southern British Columbia.
ii. An insurance company is planning to grow its business aggressively over the next five years by introducing a discount for young drivers who passed an approved driver education program.
iii. An insurance company has purchased the majority of its reinsurance arrangements from a non-registered commercial reinsurer.
iv. An insurance company is operating in an economic environment in which significant interest rate increases are imminent.

For each adverse scenario modeled in part b. above, briefly describe a possible ripple effect.

Briefly describe the criteria for an insurance company to have satisfactory financial condition.