AM Best BCAR

Question 1

AM Best BCAR - BCAR Score =

Answer 1

Adjusted Surplus / Net Capital Required

Question 2

AM Best BCAR - Net Capital Required =

Answer 2

sqrt(B1^2+B2^2+B3^2+(.5B4)^2+(.5B4+B5^2)+B6^2)+B7

Question 3

AM Best BCAR - Compontents of underwriting leverage

Answer 3

current premium writings, reinsurance recoverables, loss reserves

Question 4

AM Best BCAR - Types of leverage

Answer 4

underwriting, financial, asset

Question 5

AM Best BCAR - Financial leverage

Answer 5

exposure to debt

Question 6

AM Best BCAR - Asset leverage

Answer 6

exposure of surplus to investment, interest rate, and credit risks

Question 7

AM Best BCAR - B1

Answer 7

fixed income securities

Question 8

AM Best BCAR - B2

Answer 8

equities

Question 9

AM Best BCAR - B3

Answer 9

interest rate

Question 10

AM Best BCAR - B4

Answer 10

credit risk

Question 11

AM Best BCAR - B5

Answer 11

loss and LAE reserves

Question 12

AM Best BCAR - B6

Answer 12

net written premium

Question 13

AM Best BCAR - B7

Answer 13

business risk

Question 14

AM Best BCAR - BCAR risk categories

Answer 14

investment, credit, underwriting

Question 15

AM Best BCAR - Compare BCAR to NAIC

Answer 15

greater proportion of capital required to support premium

Question 16

AM Best BCAR - Expected policyholder defecit

Answer 16

takes into account probability of insolvency and severity of insolvency

Question 17

AM Best BCAR - Treatment of: Nonaffiliated bonds

Answer 17

look at quality distribution and assign risk charge for default risk

Question 18

AM Best BCAR - Treatment of: Common stocks

Answer 18

15% reduction in market value

Question 19

AM Best BCAR - Treatment of: Prefered stocks

Answer 19

same as common unless hold for long term - then similar to bonds

Question 20

AM Best BCAR - Treatment of: real estate and other investments

Answer 20

10% to occupied and 20% to real estate held for investment purposes

Question 21

AM Best BCAR - Treatment of: Cash

Answer 21

0.3% risk charge (in case bank becomes insolvent)

Question 22

AM Best BCAR - Treatment of: Investement in P&C insurer

Answer 22

considered in consolidated approach; if not doing consolidated approach, 100% charge

Question 23

AM Best BCAR - Treatment of: Investemnt in life/health insurer

Answer 23

required capital and excess adjusted surplus over current rating accrue to parent

Question 24

AM Best BCAR - Treatment of: Special purpose subsidiaries

Answer 24

required capital to support charged to parent

Question 25

AM Best BCAR - Treatment of: investment in other affiliates

Answer 25

100% capital charge, assuming its capital supports its operations

Question 26

AM Best BCAR - Treatment of: intercompany loans

Answer 26

if given surplus credit to borrower, credit removed form lender

Question 27

AM Best BCAR - Treatment of: derivatives

Answer 27

100% charge, if speculative moved to B7, if for hedging reduces capital required for risk but removes asset value

Question 28

AM Best BCAR - Asset concentration adjustment

Answer 28

double asset charge if holding greater than 10% of surplus

Question 29

AM Best BCAR - Spread of risk adjustment

Answer 29

related to diversification of portfolio - gives surcharge to small portfolios

Question 30

AM Best BCAR - Treatment of: Interest rate risk

Answer 30

stress test of 120 basis points increase to all liquid assets up to PML or min of 10%

Question 31

AM Best BCAR - Treatment of: affiliated reinsurance

Answer 31

10% charge for reinsurance due from domestic and foreign affiliates, adjusted for creditworthiness

Question 32

AM Best BCAR - Treatment of: nonaffiliated reinsurance

Answer 32

10% baseline, changes depending on reinsurer's BCAR rating, 100% if unrated

Question 33

AM Best BCAR - Treatment of: reinsurance dependence

Answer 33

increase credit risk charge for recoverable balances regardless of underlying credit quality

Question 34

AM Best BCAR - Treatment of: poolas and associations

Answer 34

10% charge to pool and association balances, adjusted based on creditworthiness of pool

Question 35

AM Best BCAR - Treatment of: agents' and other receivables

Answer 35

5% charge for agents' balances and 10% for accrued retrospective balances

Question 36

AM Best BCAR - Treatment of: loss reserves

Answer 36

reserve deficiency factor, discount factor, stability factor, industry baseline factor, company size adjustent, growth charge, diversification credit

Question 37

AM Best BCAR - Treatment of: net premium written

Answer 37

company premium adequacy factor, industry baseline factor, company size adjustment, UW cycle adjustment, growth charge, diversification credit

Question 38

AM Best BCAR - Treatment of: business risk

Answer 38

1% charge to off-balance sheet items and include derivaties with 100% factor

Question 39

AM Best BCAR - Adjusted surplus

Answer 39

reported surplus modified for equity adjustment in unearned premium, loss reserves, fixed income assets after tax

Question 40

AM Best BCAR - Unearned premium equity adjustment

Answer 40

increase surplus for DPAC if loss and LAE ratio < 100%, reduce for risk charge of pricing risk in unearned premium

Question 41

AM Best BCAR - Loss reserve equity adjustment

Answer 41

reflect difference between carried and economic reserves

Question 42

AM Best BCAR - Fixed income asset adjustment

Answer 42

adjust these assets to market value subject to +10% and-15% limits, then tax effected

Question 43

AM Best BCAR - Catastrophe adjustment

Answer 43

reduce reported surplus for higher of 1-in-100 year wind net PML and 1-in-250 year earthquake net PML based on wordwide exposure, then tax effected at max rate

Question 44

AM Best BCAR - Terrorism adjustement

Answer 44

info provided gross and net of federal backstop, charge is included in BCAR if greater than cat PML

Question 45

AM Best BCAR - Stress test adjustment

Answer 45

if high gross and low net cat exposure, subjected to occurance of another event; these results aren't published but do effect view of capitalization