BCAR.Cdn2018

Question 1

What is the purpose of BCAR?

Answer 1

to provide an opinion on the financial strength of an insurer (and it’s ability to meet ongoing obligations to policyholders)

Question 2

Identify considerations other than the BCAR score that impact balance sheet strength assessment

Answer 2

Q^2-SALAMI

Quality of capital
Quality of reinsurance
Stress testing
Adequacy of reserves
Liquidity of capital
Actions of affiliates
Matching of assets & liabilities
Internal capital models

Question 3

Identify the 6 steps in A.M. Best’s rating process

Answer 3

BOB-ECL

Balance sheet strength
Operating performance
Business Profile
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Enterprise risk management
Comprehensive adjustment
Lift and/or drag

Question 4

Why does A.M. Best calculate NRC and BCAR at more than 1 level of VaR

Answer 4

to gain more insight into the company’s balance sheet strength and assess its ability to withstand tail events

Question 5

Why does A.M. Best use a sensitivity analysis to supplement its BCAR calculation

Answer 5

• assess capital required to support future business
• assess impact of a pro-forma transaction
• assess projected year-end capital position

Question 6

Identify an aspect of the BCAR model that may make it more robust than MCT

Answer 6

permits qualitative adjustments to its final assessment due to market & economic conditions such as:

• interest rate changes
• stage of U/W cycle
• changes in reinsurance arrangements

Question 7

describe 3 similarities between BCAR vs. MCT

Answer 7

• purpose (assess financial strength and ability to meet PH obligations)
• key idea (apply capital factors to liabilities in various risk categories)
• covariance adjustment (to account for the statistical independence between risk categories)