CAS Exam 6C Fall 2019, Question 21
Study guide: Exam 6C
The following information from the DCAT analysis of a federally regulated property and casualty insurance company is available as of December 31, 2018. The three most adverse scenarios are shown below. All amounts are in thousands of dollars ($000s).
| Scenario | Measure | Projection Year 1 | Projection Year 2 | Projection Year 3 | Projection Year 4 |
|---|---|---|---|---|---|
| Base Scenario | MCT ratio | 230% | 235% | 241% | 248% |
| Base Scenario | Equity | 30,000 | 33,000 | 37,000 | 42,000 |
| Misestimation of Policy Liabilities (Unpaid Claims) | MCT ratio | 230% | 130% | 145% | 165% |
| Misestimation of Policy Liabilities (Unpaid Claims) | Equity | 30,000 | 10,000 | 15,000 | 23,000 |
| Frequency/Severity (Single Large Claim) | MCT ratio | 230% | 150% | 160% | 170% |
| Frequency/Severity (Single Large Claim) | Equity | 30,000 | 15,000 | 20,000 | 28,000 |
| Decline in the Stock Market (Common Shares Portfolio) | MCT ratio | 230% | 165% | 170% | 175% |
| Decline in the Stock Market (Common Shares Portfolio) | Equity | 30,000 | 20,000 | 24,000 | 28,000 |
Under the Decline in Stock Market scenario, there is a very large drop in the value of the common shares portfolio. Investments other than common shares are not impacted. Assume there is no tax implication.
Part a (0.5 points)
Assess whether the insurer's financial condition is satisfactory.
Part b (1.5 points)
Describe the impact of the Decline in the Stock Market adverse scenario on the following MCT components:
- i. Capital available
- ii. Capital required for market risk
- iii. Capital required for operational risk
Answer this question and see the worked solution