CAS Exam 6C Spring 2019, Question 13
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).
| Item | Capital (Margin) Required at Target |
|---|---|
| Insurance Risk Margin | |
| Premium liabilities | ? |
| Unpaid claims | ? |
| Catastrophes | 0 |
| Margin required for reinsurance ceded to unregistered reinsurers | 0 |
| Market Risk Margin | |
| Interest rate risk | ? |
| Foreign exchange risk | 400 |
| Equity risk | 11,000 |
| Real estate risk | 0 |
| Other market risk exposures | 0 |
| Credit Risk Margin | 3,100 |
| Operational Risk Margin | ? |
Unpaid Claims Margin
| Item | Value |
|---|---|
| Undiscounted unpaid claims - Accident year 2018 | 100,000 |
| Undiscounted unpaid claims - Accident year 2017 | 0 |
| Margin for adverse deviations (MfAD) for claims development | 12% |
| Discount rate | 3% |
| MfAD for investment return rates | 0.5% |
| Risk factor for unpaid claims | 10% |
Premium Liabilities Margin
| Item | Value |
|---|---|
| Net premium liabilities, discounted including Provisions for Adverse Deviations (PfAD) | 80,000 |
| Net premium liabilities, discounted excluding PfAD | 78,000 |
| Net premium liabilities duration | 1.80 |
| Risk factor for premium liabilities | 15% |
Assets
| Item | Value |
|---|---|
| Bond portfolio market value | 128,000 |
| Bond portfolio modified duration | 3.1 |
| Risk factor for interest rate risk | 1.25% |
| Operational Risk Margin | Value | Risk Factor |
|---|---|---|
| Direct written premium in 2018 | 150,000 | 2.5% |
| Direct written premium in 2017 | 100,000 | n/a |
| Reinsurance premium ceded in 2018 | 4,500 | 2.5% |
| Risk factor for premium growth beyond 20% threshold | n/a | 2.5% |
| Risk factor applied to total capital required (before the operational risk margin and diversification credit) for the calculation of the operational risk margin | n/a | 8.5% |
| Correlation factor between asset risk margin and insurance risk margin | n/a | 50% |
| Item | Value |
|---|---|
| Capital Available | 82,000 |
The cumulative accident year claim payment pattern is as follows:
| Age (Months) | % Paid |
|---|---|
| 12 | 25% |
| 24 | 50% |
| 36 | 75% |
| 48 | 100% |
The company began operations in 2017.
Calculate the Minimum Capital Test (MCT) ratio.
Part a (5.75 points)
Answer this question and see the worked solution
Concepts tested
- MCT
- Operational Risk Margin
- Diversification Credit
- Market Risk Margin
- Insurance Risk Margin
- Margin for Adverse Deviations