C7 Flashcards

Question

791 *E (2012.Fall 4b.ii) 0.500 pts* KPMG.RegOv: All Qz-3 misc:**Benefits to policy holders of switching: Prior Approval -\> Use & File - ii** insurers like it..

Answer 1

791 *E (2012.Fall 4b.ii) 0.500 pts* KPMG.RegOv: All Qz-3 misc:**Benefits to policy holders of switching: Prior Approval -\> Use & File - ii** insurers like it.. 1. Insurers like use & file: * If more insurers are operating --\> more competition & innovation --\> good for consumers * Regulators can then focus on solvency which protects policy holders (versus worrying about rate approval)

Answer 2

792 *E (2018.Fall 3b.) 0.500 pts* KPMG.RegOv: All Qz-3 misc:**Identify advantages to flex rating** * Less volatility in rates (rate changes must be within a specified range) * Lower expenses (versus prior approval)

Answer 3

793 *E (2017.Spring 3a.) 0.500 pts* KPMG.RegOv: All Qz-3 misc:**Regulatory approval - which is faster (File & Use vs Prior Approval)** 1. Defns: 1. File & Use: government has set period to approve otherwise rates can be used 2. Prior Approval: must approve before use 2. ANSWER: * File & Use probably faster due to set period of approval * But can't be used for all lines of business in all provinces

Answer 4

794 *E (2017.Spring 3b.) 0.500 pts* KPMG.RegOv: All Qz-3 misc:**Regulatory approval - which is faster (Open Competition vs Prior Approval)** 1. Defns: 1. Open Competition: no approval required 2. Prior Approval: see (2017.Spring #3a) 2. ANSWER: * Open Competition is faster to market * Valid only in NU, YK

Answer 5

795 *E (2017.Spring 3c.) 0.500 pts* KPMG.RegOv: All Qz-3 misc:**Regulatory approval - which is faster (Use & File, File & Use)** 1. Defns: 1. Use & File: no approval required but regulators can retroactively change rates 2. File & Use: see (2017.Spring #3a) 2. ANSWER: * Usage under Use & File faster since there is no waiting period before use * Valid only in QC

Answer 6

796 BCAR.CDN2018: All Qz-1 intro:**What is the purpose of A.M. Best's financial strength ratings** 1. To provide an opinion on the financial strength of an insurer 2. (and it's ability to meet ongoing obligations to policyholders)

Answer 7

797 BCAR.CDN2018: All Qz-1 intro:**What is the BCAR formula** 1. BCAR = (AC - NRC) / AC x 100 2. (calculated at 4 different VaR levels)

Answer 8

798 BCAR.CDN2018: All Qz-2 available capital:**How is AC (Available Capital) calculated in the BCAR formula** * Start with balance sheet reported capital (surplus) * Make appropriate adjustments

Answer 9

799 BCAR.CDN2018: All Qz-2 available capital:**Identify adjustments to balance sheet capital to obtain BCAR Available Capital** EDO 1. EDO: lura-sd-fig 1. Equity adjustments: * loss reserves * unearned premiums * reinsurance * assets 2. Debt adjustments: * surplus notes * debt service requirements 3. Other adjustments: * future operating costs * intangibles * goodwill

Answer 10

800 BCAR.CDN2018: All Qz-2 available capital:**Why don't we use unadjusted reported capital as the value for AC (Available Capital)** 1. Incorporating these adjustments provides for a more economic and consistent view of capital available

Answer 11

801 BCAR.CDN2018: All Qz-3 net required capital:**Identify the risk categories in the BCAR model** BICEP-FCR 1. asset risk: 1. (B1) Fixed income securities 2. (B2) Equity securities 3. (B3) Interest rate risk 4. (B4) Credit risk 2. U/W/ risk: 1. (B5) reserve risk 2. (B6) premium risk 3. (B8) Catastrophe risk . other risks:. (B7) Business risk

Answer 12

802 BCAR.CDN2018: All Qz-3 net required capital:**What is the purpose of the covariance adjustment in the NRC formula** * Reflects the assumed statistical independence of 7 of the 8 risk components: (B1)-(B6) and (B8) 1. (reduces NRC because it's unlikely that these 7 components will be near their maximum levels simultaneously)

Answer 13

803 BCAR.CDN2018: All Qz-3 net required capital:**Why is (B7), Business risk, excluded from the covariance adjustment** 1. A.M. Best expects an insurer to maintain capital for business risks without the benefit of diversification

Answer 14

804 BCAR.CDN2018: All Qz-3 net required capital:**In the BCAR model, what is 'gross required captial'** 1. Gross required capital = direct SUM of required capital for (B1) through (B8) 2. (represents total required capital if all risks developed simultaneously)

Answer 15

805 BCAR.CDN2018: All Qz-3 net required capital:**Determine the A.M. Best rating based on the strength assessment table** 1. Click button with pencil

Answer 16

806 BCAR.CDN2018: All Qz-4 calculate (B5):**What is the key idea in calculating the required capital for each risk category** 1. Multiply the liability from each risk category by a specific capital factor (similar to MCT)

Answer 17

807 BCAR.CDN2018: All Qz-4 calculate (B5):**Briefly describe how BCAR 'capital factors' are derived** 1. Derivation of capital factors is: * Based on industry risk factors * Then adjusted for company's volatility in case loss development

Answer 18

808 BCAR.CDN2018: All Qz-4 calculate (B5):**Calculate B5 for BCAR for each VaR level** 1. Click button with pencil

Answer 19

809 BCAR.CDN2018: All Qz-5 concepts:**Identify considerations other than BCAR score that impact Best's balance sheet strength assessment** Cured SALAMI 1. Q² - SALAMI 1. Q² → Quality of capital, Quality of reinsurance 1. – 2. Stress testing (how well does the company perform under stress) 3. Adequacy of reserves 4. Liquidity of capital 5. Actions of affiliates (affiliates could drag you down or pull you up) 6. Matching of assets & liabilities (this is desirable for paying your bills on time) 7. Internal capital models (does the company have a good procedure for assessing its own capital needs)

Answer 20

810 BCAR.CDN2018: All Qz-5 concepts:**Identify the 6 steps in A.M. Best's rating process (leading to the final issuer credit rating)** BOB-ECL (analyst for A.M. Best!) 1. BOB-ECL 1. Balance sheet strength (based mainly on the BCAR scores, but subject also subject to Cured Salami.) 2. Operating performance 3. Business profile 1. – 4. Enterprise risk management 5. Comprehensive adjustment 6. Lift and/or drag

Answer 21

811 BCAR.CDN2018: All Qz-5 concepts:**Identify company characteristics that may tend to lower a company's BCAR score** * Aggressive investment portfolio (increases NRC for investment risk categories B1, B2, B3) * Loans to poor creditors or reinsurance with low-rated reinsurers (increases NRC for credit risk category B4) * Reserve deficiency (increases NRC for reserve risk category B5) * Excessive growth or high U/W leverage (increases NRC for premium risk category B6) * Concentration of property risks in Florida (increases NRC for catastrophe risk category B8)

Answer 22

812 BCAR.CDN2018: All Qz-5 concepts:**Why does A.M. Best calculate NRC and BCAR at more than 1 level of VaR** insight, tail events * To gain more insight into the company's balance sheet strength * To assess its ability to withstand tail events

Answer 23

813 BCAR.CDN2018: All Qz-5 concepts:**Why does A.M. Best use a sensitivity analysis to supplement its BCAR calculation** * Assess capital required to support future business * Assess impact of a pro-forma transaction (acquisition of a subsidiary) * Assess projected year-end capital position

Answer 24

814 BCAR.CDN2018: All Qz-5 concepts:**Identify an aspect of the BCAR model that may make it more robust than MCT** 1. BCAR model permits qualitative adjustments to final assessment for economic conditions: * Interest rate changes * Stage of U/W cycle * Changes in reinsurance arrangements

Answer 25

815 BCAR.CDN2018: All Qz-6 BCAR vs MCT:**Describe 3 similarities between the BCAR model and MCT** * Purpose (assess financial strength and ability to meet policyholder obligations) * Key idea (apply capital factors to liabilities in various risk categories) * Covariance adjustment (to account for the statistical independence between risk categories)

Answer 26

816 BCAR.CDN2018: All Qz-6 BCAR vs MCT:**Describe 3 differences between BCAR model and MCT** * 1. formula is different and: 2. Â†’ BCAR_max = 100%, no minimum 3. Â†’ MCT_min = 0%, no maximum 4. robustness is different: 5. Â†’ A.M. Best more robust because final assessment includes qualitative economic conditions 6. (like stage of U/W cycle) 7. time horizon is different: 8. Â†’ BCAR capital must support current & future premium risk 9. Â†’ MCT focuses more on current year's risk

Answer 27

817 BCAR.Cat: NEW Qz-1 A (market overview):**Why is cat loss a big threat to financial health** cats: SUR 1. Cats are (Significant, Unexpected, Rapid)

Answer 28

818 *E (2015.Spring 17a.) 0.500 pts* BCAR.Cat: NEW Qz-1 A (market overview):**Identify drivers for recent increase in frequency/severity of cats** 1. FREQUENCY: climate change 2. SEVERITY: increase in population density & complexity of supply chains

Answer 29

819 BCAR.Cat: NEW Qz-1 A (market overview):**Identify Best's expectations for insurers accepting cat risks (2)** manage, absorb 1. Insurers must demonstrate ability to: * MANAGE cat risk * ABSORB potential losses

Answer 30

820 *E (2018.Spring 22a.) 1.000 pts* BCAR.Cat: NEW Qz-2 B (ERM):**Describe the elements of strong cat risk management (4)** 1. Catastrophe modeling: * Parameter selection is critical * Use more than 1 model 2. Data quality: * Accurate property location & coding * Property value & insurance-to-value * Conduct site reviews (so that information is up-to-date) * Safeguards to prevent manipulation by customers 3. Aggregate loss exposure: * Use aggregate losses as a secondary test of model 4. Monitoring: (MML) * Measure, Monitor, Limit exposure on a continuous basis

Answer 31

821 BCAR.Cat: NEW Qz-1 C (B/S strength):**What is a standard BCAR score** 1. A measure of an insurer's financial strength (includes a component for catastrophes)

Answer 32

822 BCAR.Cat: NEW Qz-1 C (B/S strength):**What is a stressed BCAR score** 1. A score that reflects the ability of an insurer to continue operating even after a castastrophe * Based on natural catastrophe stress test

Answer 33

823 *E (2018.Spring 22c.) 1.000 pts* BCAR.Cat: NEW Qz-1 C (B/S strength):**Identify considerations in adjusting an insurer's rating based on it's stressed BCAR score** flexibility, volatility, multiple exposures, risk management 1. Financial flexibility: * Tolerance is HIGHER if the company is willing & able to replace capital after an event 2. Historical volatility * Tolerance is LOWER if the company has as history of volatile operating performance 3. Frequency of severe exposures * Tolerance is LOWER if the company has multiple exposures to severe events in a single season 4. Risk management * Tolerance is HIGHER if the company has good/experienced risk management

Answer 34

824 *E (2017.Spring 23d.) 0.250 pts* BCAR.Cat: NEW Qz-2 C (B/S strength): **what is the purpose of the A.M. Best natural catastrophe stress test** 1. Test financial condition of insurer after 2 major catastrophe events

Answer 35

825 *E (2016.Fall 21b.) 1.250 pts* BCAR.Cat: NEW Qz-2 C (B/S strength):**Describe the steps in the natural catastrophe stress test** surplus, reinsurance, reserves, optional (adjust PMLs) 1. [1] surplus * Reduce reported surplus by PML (net post-tax 1-in-100 year event) 2. [2] reinsurance * Increase reinsurance recoverables by at least 40% of ceded PML 3. [3] reserves * Increase reserves by 40% of net PML 4. [4] optional * Adjust PMLs used in cat risk portion of standard BCAR score due to changes in reinsurance structure after 1st cat event

Answer 36

826 *E (2019.Spring 18c.) 0.500 pts* BCAR.Cat: NEW Qz-2 C (B/S strength):**How do earthquakes impact BCAR surplus** 1. Reduce reported surplus by PML (net post-tax 1-in-100 year event)

Answer 37

827 *E (2018.Spring 22b.) 0.500 pts* BCAR.Cat: NEW Qz-2 C (B/S strength):**Reason for testing a 2nd catastrophe event** * Insurer still has exposure aft after the first cat * Including a 2nd cat provides a better assessment of the insurer's financial condition

Answer 38

828 *E (2015.Spring 17c.) 0.500 pts* BCAR.Cat: NEW Qz-2 C (B/S strength):**Compare & contrast testing of cat risk: BCAR v DCAT** 1. SIMILARITY: both test multiple events 2. DIFFERENCE: BCAR tests 2nd non-concurrent event

C7 Flashcards

(62 cards)