BCAR.Cat Flashcards
Briefly explain why is a cat loss a big threat to financial health.
Cats are Significant, Unexpected and Rapid. (SUR)
Identify 2 Best’s expectations for insurers accepting cat risks.
insurers must demonstrate ability to:
- MANAGE cat risk
- ABSORB potential losses
Explain the standard BCAR score.
measure of an insurer’s financial strength (includes a component for catastrophes)
Explain the stressed BCAR score.
- a score that reflects the ability of an insurer to continue operating even after a castastrophe
- based on natural catastrophe stress test
Identify 4 factors the tolerance for stressed BCAR scores.
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
Identify the 4 steps in natural catastrophe stress test.
[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
Then, recalculate BCAR score
What is the purpose of the A.M. Best natural catastrophe stress test
test financial condition of insurer after 2 major catastrophe events
Identify 1 similarity and 1 difference between BCAR Cat and DCAT (now FCT)
SIMILARITY: both test multiple events
DIFFERENCE: BCAR tests 2nd non-concurrent event