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Exam 6C > AM Best BCAR > Flashcards

AM Best BCAR Flashcards

1
Q

AM Best BCAR - BCAR Score =

A

Adjusted Surplus / Net Capital Required

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2
Q

AM Best BCAR - Net Capital Required =

A

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

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3
Q

AM Best BCAR - Compontents of underwriting leverage

A

current premium writings, reinsurance recoverables, loss reserves

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4
Q

AM Best BCAR - Types of leverage

A

underwriting, financial, asset

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5
Q

AM Best BCAR - Financial leverage

A

exposure to debt

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6
Q

AM Best BCAR - Asset leverage

A

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

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7
Q

AM Best BCAR - B1

A

fixed income securities

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8
Q

AM Best BCAR - B2

A

equities

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9
Q

AM Best BCAR - B3

A

interest rate

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10
Q

AM Best BCAR - B4

A

credit risk

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11
Q

AM Best BCAR - B5

A

loss and LAE reserves

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12
Q

AM Best BCAR - B6

A

net written premium

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13
Q

AM Best BCAR - B7

A

business risk

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14
Q

AM Best BCAR - BCAR risk categories

A

investment, credit, underwriting

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15
Q

AM Best BCAR - Compare BCAR to NAIC

A

greater proportion of capital required to support premium

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16
Q

AM Best BCAR - Expected policyholder defecit

A

takes into account probability of insolvency and severity of insolvency

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17
Q

AM Best BCAR - Treatment of: Nonaffiliated bonds

A

look at quality distribution and assign risk charge for default risk

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18
Q

AM Best BCAR - Treatment of: Common stocks

A

15% reduction in market value

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19
Q

AM Best BCAR - Treatment of: Prefered stocks

A

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

20
Q

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

A

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

21
Q

AM Best BCAR - Treatment of: Cash

A

0.3% risk charge (in case bank becomes insolvent)

22
Q

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

A

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

23
Q

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

A

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

24
Q

AM Best BCAR - Treatment of: Special purpose subsidiaries

A

required capital to support charged to parent

25
Q

AM Best BCAR - Treatment of: investment in other affiliates

A

100% capital charge, assuming its capital supports its operations

26
Q

AM Best BCAR - Treatment of: intercompany loans

A

if given surplus credit to borrower, credit removed form lender

27
Q

AM Best BCAR - Treatment of: derivatives

A

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

28
Q

AM Best BCAR - Asset concentration adjustment

A

double asset charge if holding greater than 10% of surplus

29
Q

AM Best BCAR - Spread of risk adjustment

A

related to diversification of portfolio - gives surcharge to small portfolios

30
Q

AM Best BCAR - Treatment of: Interest rate risk

A

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

31
Q

AM Best BCAR - Treatment of: affiliated reinsurance

A

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

32
Q

AM Best BCAR - Treatment of: nonaffiliated reinsurance

A

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

33
Q

AM Best BCAR - Treatment of: reinsurance dependence

A

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

34
Q

AM Best BCAR - Treatment of: poolas and associations

A

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

35
Q

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

A

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

36
Q

AM Best BCAR - Treatment of: loss reserves

A

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

37
Q

AM Best BCAR - Treatment of: net premium written

A

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

38
Q

AM Best BCAR - Treatment of: business risk

A

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

39
Q

AM Best BCAR - Adjusted surplus

A

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

40
Q

AM Best BCAR - Unearned premium equity adjustment

A

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

41
Q

AM Best BCAR - Loss reserve equity adjustment

A

reflect difference between carried and economic reserves

42
Q

AM Best BCAR - Fixed income asset adjustment

A

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

43
Q

AM Best BCAR - Catastrophe adjustment

A

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

44
Q

AM Best BCAR - Terrorism adjustement

A

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

45
Q

AM Best BCAR - Stress test adjustment

A

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

Exam 6C (38 decks)

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