CAS Exam 6C Spring 2019, Question 19
Study guide: Exam 6C
The following information from the Dynamic Capital Adequacy Testing (DCAT) analysis of a federally regulated property and casualty insurance company is available as at December 31, 2018.
| Scenario | Variable | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|---|
| Base scenario | MCT Ratio | 215% | 240% | 250% | 265% |
| Assets | 1,000,000 | 1,100,000 | 1,210,000 | 1,331,000 | |
| Liabilities | 700,000 | 770,000 | 847,000 | 931,700 | |
| Frequency/severity (loss ratio) | MCT Ratio | 215% | 170% | 125% | 146% |
| Assets | 1,000,000 | 944,000 | 890,400 | 919,440 | |
| Liabilities | 700,000 | 714,000 | 727,400 | 720,140 | |
| Misestimation of policy liabilities (unpaid claims) | MCT Ratio | 215.0% | -18.2% | 11.2% | 40.4% |
| Assets | 1,000,000 | 744,000 | 770,400 | 799,440 | |
| Liabilities | 700,000 | 764,000 | 757,400 | 750,140 | |
| Combined economic scenario | MCT Ratio | 215.0% | 114.1% | 148.8% | 182.2% |
| Assets | 1,000,000 | 802,000 | 831,700 | 864,370 | |
| Liabilities | 700,000 | 722,000 | 718,700 | 715,070 |
Internal Target: 200%
Part a (0.5 points)
Describe the requirements of a DCAT base scenario.
Part b (0.5 points)
Assess whether or not the company is in satisfactory financial condition.
Part c (0.5 points)
Identify two possible management actions that the actuary may consider under the misestimation of policy liabilities scenario.
Part d (0.5 points)
Identify two possible ripple effects that the actuary may consider under the frequency/severity (loss ratio) scenario.
Part e (0.5 points)
A catastrophic event occurs after the report is completed, but before the presentation to the Board is made. Describe the actions that the Appointed Actuary (AA) should take.
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