Actuarial Notes

CAS Exam 6C Fall 2019, Question 19

Study guide: Exam 6C

The following information is available for a federally regulated property and casualty insurance company as at December 31, 2018. All amounts are in thousands of dollars ($000s).

Capital available:

Item Amount
Common shares issued by the company 15,500
Surplus 18,100
Goodwill and intangible assets 2,200
Retained earnings 2,500
Earthquake, nuclear and general contingency reserves 1,000
Accumulated other comprehensive income 4,500
Deferred tax assets 3,600
Category B instruments 7,500
Category C instruments 3,000

Market risk:

Item Value
Interest rate risk shock factor 1.25%
Bond and debentures (modified duration 4 years) 12,300
Commercial paper (modified duration 3 years) 7,000
Net premium liabilities (modified duration 1.5 years) 8,000
Net unpaid claim and adjustments expenses (modified duration 1.75 years) 13,500
Capital required for foreign exchange risk 150
Capital required for equity risk 1,000
Capital required for real estate risk 200

Assume that there are no allowable interest rate derivatives.

Operational risk:

Item 2018 2017 Risk factor
Direct premiums written in the past 12 months 51,000 34,000 2.50%
Assumed premiums written in the past 12 months arising from third party reinsurance 19,200 12,500 1.75%
Assumed premiums written in the past 12 months arising from intra-group pooling arrangements 0 0 0.75%
Ceded premiums written in the past 12 months arising from third party reinsurance 5,300 4,250 2.50%
Ceded premiums written in the past 12 months arising from intra-group pooling arrangements 0 0 0.75%

Other information:

Item Value
Capital required for insurance risk 29,500
Capital required for credit risk 5,000
Correlation factor between asset risk margin and insurance risk margin 50%

Calculate the Minimum Capital Test (MCT) ratio and assess whether it meets OSFI's supervisory target expectations.

Part a (5.25 points)

Answer this question and see the worked solution

Concepts tested

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