BCAR.CAT

Question 1

what is a stressed BCAR score

Answer 1

• a score that reflects the ability of an insurer to continue operating even after a castastrophe
• based on natural catastrophe stress test
  → the standard BCAR score already has a catastrophe component so the stressed score measures the impact of a second catastrophe

Question 2

identify considerations in adjusting an insurer’s rating based on it’s stressed BCAR score

Answer 2

financial flexibility:
- tolerance is HIGHER if the company is willing & able to replace capital after an event
historical volatility
- tolerance is LOWER if the company has as history of volatile operating performance
frequency of severe exposures
- tolerance is LOWER if the company has multiple exposures to severe events in a single season
risk management
- tolerance is HIGHER if the company has good/experienced risk management

Question 3

describe the steps in the natural catastrophe stress test

Answer 3

[1] surplus
- reduce reported surplus by PML (net post-tax 1-in-100 year event)
[2] reinsurance
- increase reinsurance recoverables by at least 40% of ceded PML
[3] reserves
- increase reserves by 40% of net PML
[4] optional
- adjust PMLs used in cat risk portion of standard BCAR score due to changes in reinsurance structure after 1st cat event