C4 Flashcards
416
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 intro:QUIK-SUMM - purpose of stress-testing (4)
risk, complement, Cap-Liq
416
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 intro:QUIK-SUMM - purpose of stress-testing (4)
risk, complement, Cap-Liq
- RISK: identify & control risk
- COMPLEMENT: provide a complement to other risk management tools + simulate shocks
- CAPITAL MGMT: support capital management
- LIQUIDITY MGMT: improve liquidity management
417
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - risk ID, control (regarding purpose of stress-testing)
id concentrations, adjust portfolios
417
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - risk ID, control (regarding purpose of stress-testing)
id concentrations, adjust portfolios
- RISK ID: identify concentrations & interactions of risks
- RISK CONTROL: adjust (individual portfolios, overall business strategy)
418
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - complementing other tools (regarding purpose of stress-testing)
value at risk, simulate shocks..
418
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - complementing other tools (regarding purpose of stress-testing)
value at risk, simulate shocks..
- Test statistical models USED to determine Value-at-Risk
- Simulate SHOCKS to test model robustness to economic changes
419
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - supporting Capital Management (regarding purpose of stress-testing)
severe/compounding events
419
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - supporting Capital Management (regarding purpose of stress-testing)
severe/compounding events
- Identify SEVERE events and/or COMPOUNDING events that impact capital requirements
420
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - improving Liquidity Management (regarding purpose of stress-testing)
assess liquidity profile..
420
CIA.DCAT 1,2: INTRO & METHOD
Qz-1 purpose:Describe - improving Liquidity Management (regarding purpose of stress-testing)
assess liquidity profile..
- ASSESS liquidity profile & adequacy of buffers FOR institutional & market-wide stresses
421
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:QUIK-SUMM - steps in the DCAT process (7)
421
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:QUIK-SUMM - steps in the DCAT process (7)
- Review
- BASE scenario
- Risk
- PAS
- Report
- Management actions
- Regulato actions
422
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 1 - review (1)/7
422
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 1 - review (1)/7
- REVIEW: 3 years operations & financial position @ end of each year
423
E (2019.Spring 19a.) 0.500 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 2 - BASE (2)/7
423
E (2019.Spring 19a.) 0.500 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 2 - BASE (2)/7
- BASE scenario:
- CREATE a set of assumptions on risk factors
- Should be CONSISTENT with business plan (if plan is realistic & consistent)
- Should COVER the forecast period
424
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 3 - risk (3)/7
..SensTest..
424
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 3 - risk (3)/7
..SensTest..
- RISK CATEGORIES: select relevant risk categories from F-PIP-RIGOR using sensitivity-testing
425
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 4 - PAS (4)/7
425
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 4 - PAS (4)/7
- PAS: select plausible adverse scenarios from the risk categories identified in step 3
426
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 5 - report (5)/7
426
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 5 - report (5)/7
- REPORT: scenarios with highest surplus sensitivity & those where surplus < (supervisory capital required)
427
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 6 - Action(management) (6)/7
RskMit.ContPlan
427
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 6 - Action(management) (6)/7
RskMit.ContPlan
- ACTION (by management): identify management action to facilitiate risk mitigation & contingency planning
428
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 7 - Action(regulator) (7)/7
+ sign
428
CIA.DCAT 1,2: INTRO & METHOD
Qz-2 method:Describe DCAT process step 7 - Action(regulator) (7)/7
+ sign
- ACTION (by regulator): identify possible regulatory action for falling below regulatory capital required (& SIGN opinion)
429
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 forecast period:What should the length of the DCAT forecast period be & what is a consideration in determining the length
429
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 forecast period:What should the length of the DCAT forecast period be & what is a consideration in determining the length
- At least 3 years for P&C insurance
- Consideration: long enough to (capture adversity, give management time to react)
433
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘adverse scenario’
433
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘adverse scenario’
- A scenario with an adverse outcome on the insurer’s financial condition
- Developed by stress-testing assumptions (risk factors) used in forecasting the business plan
434
E (2018.Spring 19a.) 0.250 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘plausible adverse scenario’
set of assmps..
434
E (2018.Spring 19a.) 0.250 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘plausible adverse scenario’
set of assmps..
- (set of assumptions) for an (undesirable but reasonably possible event) relating to (insurer’s financial condition)
- Statsitically, the scenario should lie between the 95th and 99th percentile on the loss distribution.
435
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘integrated scenario’ & give an example
435
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘integrated scenario’ & give an example
- An integrated scenario is a combination of 2 or more simpler adverse scenarios
- Example: combine a low probability scenario with & high probability scenario
436
E (2017.Fall 23a.ii) 0.250 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:List two methods of selecting Plausible Adverse Secenarios (2)
436
E (2017.Fall 23a.ii) 0.250 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:List two methods of selecting Plausible Adverse Secenarios (2)
- METHOD 1: pick a scenario that falls between the 95th and 99th percentile of the loss distribution
- Adverse scenario requires > 95th percentile
- Plausible scenario requires < 99th percentile)
- METHOD 2: reverse stress-testing
437
E (2014.Fall 26a.) 0.500 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘reverse stress testing’
how far risk factors..
437
E (2014.Fall 26a.) 0.500 pts
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘reverse stress testing’
how far risk factors..
- HOW FAR must risk factors change TO DRIVE the insurer’s surplus negative during forecast period THEN determine whether such change is plausible
438
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘ripple effect’
an event that occurs when..
438
CIA.DCAT 1,2: INTRO & METHOD
Qz-3 PAS:Define ‘ripple effect’
an event that occurs when..
- An event that occurs WHEN an adverse scenario triggers a change in 1 or more interdependent assumptions
439
CIA.DCAT 1,2: INTRO & METHOD
PAS:List some common examples of ripple effects (7)
439
CIA.DCAT 1,2: INTRO & METHOD
PAS:List some common examples of ripple effects (7)
- Higher LR (higher losses or operating costs)
- Loss of reinsurance
- Post-event inflation
- Forced sale or liquidation
- Mix shift
- Policy holder actions
- Regulatory actions
440
CIA.DCAT 1,2: INTRO & METHOD
Qz-6 PAS:List some common examples of management actions (5)
440
CIA.DCAT 1,2: INTRO & METHOD
Qz-6 PAS:List some common examples of management actions (5)
- Tighten U/W criteria
- Increase rates
- Review reinsurance
- Sell assets
- Review mix (by geography, limit,..)
441
CIA.DCAT 3: MODELING
Qz-4 basic reqs:What are the basic requirements of a DCAT model (3)
reproduce..
441
CIA.DCAT 3: MODELING
Qz-4 basic reqs:What are the basic requirements of a DCAT model (3)
reproduce. .
* REPRODUCE key elements of financial statements:
- B/S items - assets, liabilities, equity
- Income Statement items - revenue, expenses
- Regulatory measures of capital adequacy
442
CIA.DCAT 3: MODELING
Qz-4 model validation:How does an actuary validate a DCAT model in a static environment
Base continuity:CLS
442
CIA.DCAT 3: MODELING
Qz-4 model validation:How does an actuary validate a DCAT model in a static environment
Base continuity:CLS
- Usually tested with base scenario:
- Base scenario usually shows continuity of results from year-to-year (cash, liabilities, surplus,..)
444
CIA.DCAT 4: REPORTING
Qz-5 intro:Purpose of DCAT report
444
CIA.DCAT 4: REPORTING
Qz-5 intro:Purpose of DCAT report
- COMMUNICATION to Board of Directors: identify risks & ways to reduce risk
- IN OTHER WORDS: report on the financial condition of insurer & things to improve
445
CIA.DCAT 4: REPORTING
Qz-5 intro:What are the different audiences for a DCAT report (3)
Bmr
445
CIA.DCAT 4: REPORTING
Qz-5 intro:What are the different audiences for a DCAT report (3)
Bmr
- Board of Directors: prefers an interpretive summary versus a detailed statistical report
- Management: receives a more detailed report
- Regulator: focuses on solvency issues
446
E (2018.Fall 20f.) 0.500 pts
CIA.DCAT 4: REPORTING
Qz-5 intro:When can actuary report that the financial condition of an insurer is satisfactory
446
E (2018.Fall 20f.) 0.500 pts
CIA.DCAT 4: REPORTING
Qz-5 intro:When can actuary report that the financial condition of an insurer is satisfactory
- For (BASE scenario):
- supervisory capital requirements must be met
- which means MCT > 150% (ALL YRS)
- For (BASE scenario, all PAS):
- assets > liabilities (ALL YRS)
447
E (2018.Spring 19d.) 0.500 pts
CIA.DCAT 4: REPORTING
intro:When can actuary report that the financial condition of an insurer is satisfactory
447
E (2018.Spring 19d.) 0.500 pts
CIA.DCAT 4: REPORTING
intro:When can actuary report that the financial condition of an insurer is satisfactory
- For (BASE scenario):
- supervisory capital requirements must be met
- which means MCT > 150% (ALL YRS)
- For (BASE scenario, all PAS):
- assets > liabilities (ALL YRS)
448
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB intro:What are the P&C Insurer Risk Categories pertaining to DCAT
F-PIP-RIGOR
448
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB intro:What are the P&C Insurer Risk Categories pertaining to DCAT
F-PIP-RIGOR
- F:
- Frequency & severity
- PIP:
- Policy liabilities
- Inflation
- Premium
- RIGOR:
- Reinsurance & counter-parties
- Investment risk
- Government risk
- Off-B/S risk
- Related company risk
449
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.1) give examples of causes, ripple effects, and management actions for the Frequency & Severity risk category
449
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.1) give examples of causes, ripple effects, and management actions for the Frequency & Severity risk category
- CAUSE: catastrophe, social inflation
- RIPPLE EFFECT: post-event inflation, loss of reinsurance
- MANAGEMENT ACTIONS: raise rates, review reinsurance
450
E (2013.Fall 29d.) 0.500 pts
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.2) give examples of causes, ripple effects, and management actions for the Policy Liabilities risk category
450
E (2013.Fall 29d.) 0.500 pts
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.2) give examples of causes, ripple effects, and management actions for the Policy Liabilities risk category
- CAUSE: inadequate LDFs, class action lawsuits
- RIPPLE EFFECTS: forced sale or liquidation, rating agency downgrade
- MANAGEMENT ACTIONS: increase rates, review mix
451
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.3) give examples of causes, ripple effects, and management actions for the Inflation risk category
451
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.3) give examples of causes, ripple effects, and management actions for the Inflation risk category
- CAUSE: (rapid, sustained) increase OR (temporary) increase in (labour, materials) due to catastrophe
- RIPPLE EFFECTS: increase in operating costing, reinsurance
- MANAGEMENT ACTIONS: increase rates, review mix
452
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.4a) give examples of causes, ripple effects, and management actions for the Premium risk category (higher volume than expected)
452
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.4a) give examples of causes, ripple effects, and management actions for the Premium risk category (higher volume than expected)
- CAUSE: inadequate rates, withdrawal of competitor
- RIPPLE EFFECTS: deteriorating LR, increased expenses (new staff, overtime)
- MANAGEMENT ACTIONS: raise rates, hire more staff
453
E (2013.Fall 29c.) 0.500 pts
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.4b) give examples of causes, ripple effects, and management actions for the Premium risk category (lower volume than expected)
453
E (2013.Fall 29c.) 0.500 pts
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.4b) give examples of causes, ripple effects, and management actions for the Premium risk category (lower volume than expected)
- CAUSE: rates too high, new competitor
- RIPPLE EFFECTS: mix shift, increased fixed exp ratio
- MANAGEMENT ACTIONS: review mix, lower rates
454
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.5) give examples of causes, ripple effects, and management actions for the Reinsurance & counterparty risk category
454
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.5) give examples of causes, ripple effects, and management actions for the Reinsurance & counterparty risk category
- CAUSE: reinsurer insolvency, reinsurer dispute
- RIPPLE EFFECTS: reinsurance rate increase for replacement reinsurer, reduced reimbursement
- MANAGEMENT ACTIONS: review reinsurance: diversify or change reinsurer
455
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.6) give examples of causes, ripple effects, and management actions for the Investment risk category
455
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.6) give examples of causes, ripple effects, and management actions for the Investment risk category
- CAUSE: significant change in yield curve, decrease in returns on equity investments
- RIPPLE EFFECTS: forced sale or liquidation, significant change in cash flows
- MANAGEMENT ACTIONS: sell assets, change investment strategy
456
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.7) give examples of causes, ripple effects, and management actions for the Govt risk category
456
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.7) give examples of causes, ripple effects, and management actions for the Govt risk category
- CAUSE: rate freeze/rollback, change in solvency standards requiring increase in capital
- RIPPLE EFFECTS: LR up, forced sale
- MANAGEMENT ACTIONS: tighten U/W, review reinsurance and/or mix of business
457
E (2017.Fall 22c.) 0.750 pts
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.8a) give examples of causes, ripple effects, and management actions for the Off-B/S risk category
457
E (2017.Fall 22c.) 0.750 pts
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.8a) give examples of causes, ripple effects, and management actions for the Off-B/S risk category
- CAUSE: derivative risk, pension underfunding
- RIPPLE EFFECTS: forced sale or liquidation, significant changes in cash flows
- MANAGEMENT ACTIONS: reposition derivatives, change pension from defined benefit to defined contribution
458
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.8b) explain what is meant by ‘derivatives’ risk
mkt = liq + bas
458
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.8b) explain what is meant by ‘derivatives’ risk
mkt = liq + bas
- Components of derivative risk are liquidity risk & basis risk
- Liquidity risk means: can’t unwind contract (when desired or for a low price)
- Basis risk means: price behavior unexpected; undoes hedging
459
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.9) give examples of causes, ripple effects, and management actions for the Related company risk category
459
CIA.DCAT AppB: RISK CATEGORIES
Qz-6 AppB:(B.9) give examples of causes, ripple effects, and management actions for the Related company risk category
- CAUSE: reduction in parent support, rating agency downgrade at group level
- RIPPLE EFFECTS: management too focused on group - delays remediation for individual insurer
- MANAGEMENT ACTIONS: find alternate sources of funding
468
E (2017.Fall 23b.) 1.000 pts
CIA.DCAT Supp: Extra Exam Problems
Qz-5 AppB misc:For a premium volume adverse scenario, describe a (i) cause, (ii) adverse assumption, (iii) ripple effect (iv) mgmt action
468
E (2017.Fall 23b.) 1.000 pts
CIA.DCAT Supp: Extra Exam Problems
Qz-5 AppB misc:For a premium volume adverse scenario, describe a (i) cause, (ii) adverse assumption, (iii) ripple effect (iv) mgmt action
- (i) cause: relaxation of U/W standards
- (ii) adverse assumption: large increase in premium
- (iii) ripple effect: deteriorating loss ratio
- (iv) management action: raise rates
479
E (2017.Fall 22b.) 0.750 pts
CIA.DCAT Supp: Extra Exam Problems
Qz-7 AppB misc:Define social inflation and it’s effect on a company
479
E (2017.Fall 22b.) 0.750 pts
CIA.DCAT Supp: Extra Exam Problems
Qz-7 AppB misc:Define social inflation and it’s effect on a company
- it is claims inflation resulting from: changes in (likelihood, size) of claims, standards of liability, attitudes of claimants
- Increased claims may cause increase in reserves and higher rates
484
E (2016.Fall 20a.) 0.500 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 intro:Defn of ‘stress-testing’ (general)
a risk management technique..
484
E (2016.Fall 20a.) 0.500 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 intro:Defn of ‘stress-testing’ (general)
a risk management technique..
- A risk management technique
- ==> TO EVALUATE effects on financial condition..
- ==> due to SPECIFIED CHANGES in risk factors..
- ==> corresponding to exceptional but plausible events
485
E (2017.Fall 24.i) 2.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 intro:QUIK-SUMM - purpose of stress-testing (4)
risk, complement, Cap-Liq
485
E (2017.Fall 24.i) 2.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 intro:QUIK-SUMM - purpose of stress-testing (4)
risk, complement, Cap-Liq
- RISK:
- Identify & control risk
- COMPLEMENT:
- Provide a complement to other risk management tools + simulate shocks
- CAPITAL MANAGEMENT:
- Support capital management
- LIQUIDITY MANAGEMENT:
- Improve liquidity management
486
E (2017.Fall 24b.ii) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - risk ID, control (regarding purpose of stress-testing)
id concentrations, adjust portfolios
486
E (2017.Fall 24b.ii) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - risk ID, control (regarding purpose of stress-testing)
id concentrations, adjust portfolios
- Risk ID:
- Identify concentrations & interactions of risks
- Risk CONTROL:
- Adjust individual portfolios & overall business strategy
487
E (2017.Fall 24b.iii) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - complementing other tools (regarding purpose of stress-testing)
value at risk, simulate shocks..
487
E (2017.Fall 24b.iii) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - complementing other tools (regarding purpose of stress-testing)
value at risk, simulate shocks..
- Test statistical models USED to determine VaR (Value at Risk)
- Simulate SHOCKS to test model robustness to economic changes
488
E (2017.Fall 24b.iv) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - supporting Capital Management (regarding purpose of stress-testing)
severe/compounding events
488
E (2017.Fall 24b.iv) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - supporting Capital Management (regarding purpose of stress-testing)
severe/compounding events
- Identify SEVERE events and/or COMPOUNDING events that impact capital requirements
489
E (2017.Fall 24b.v) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - improving Liquidity Management (regarding purpose of stress-testing)
assess liquidity profile..
489
E (2017.Fall 24b.v) 0.000 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe - improving Liquidity Management (regarding purpose of stress-testing)
assess liquidity profile..
- ASSESS liquidity profile & adequacy of buffers FOR institutional & market-wide stresses
490
E (2018.Fall 22a.) 0.500 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe how stress-testing is a key risk management tool for coverage of overland flooding
490
E (2018.Fall 22a.) 0.500 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 purpose:Describe how stress-testing is a key risk management tool for coverage of overland flooding
- Company won’t have historical data
- ==> identify flood risks using stress-testing models
- ==> estimate capital required to support flood risk in different scenarios
- ==> stress-testing could complement publicly available flood data
491
E (2018.Fall 22b.) 0.500 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 role (Board of Directors, Mgmt):Describe board versus management responsibilities regarding a stress-testing program (3,3)
491
E (2018.Fall 22b.) 0.500 pts
OSFI.STRESS ABC: DEFN, PURPOSE, ROLE (Board of Directors,Mgmt)
Qz-1 role (Board of Directors, Mgmt):Describe board versus management responsibilities regarding a stress-testing program (3,3)
- Board of Director’s responsibilities:
- Ultimate responsibility for program
- Ensures implementation of program by management
- Should be aware of key findings
- Management’s responsibilities:
- Implement & manage stress-testing program
- Identify PAS (Plausible Adverse Scenario)
- Develop& implement risk mitigation strategies
492
E (2014.Spring 27b.) 1.500 pts
OSFI.STRESS D: GENERAL CONSIDERATIONS
Qz-2 gen:Rudimentary stress-testing considerations (4)
RUDI
492
E (2014.Spring 27b.) 1.500 pts
OSFI.STRESS D: GENERAL CONSIDERATIONS
Qz-2 gen:Rudimentary stress-testing considerations (4)
RUDI
- RANGE: (range of perspectives, techniques)
- Perspectives: consult economists, actuaries, others
- Techniques: qualitative, quantitative
- UPDATES: (update stress-testing framework regularly)
- Monitor EFFECTIVENESS of framework with (qualitative, quantitative) measures & UPDATE accordingly
- Elements of a framework include: docs, data quality, assumptions,..
- DOCS:
- Provide written docs of assumptions & fundamental elements of scenarios
- INFRASTRUCTURE: (should be flexible)
- Should allow increase in SENSITIVITY TESTING in times of rapid change
- Should accommodate TIME HORIZONS for management action
494
E (2017.Spring 22.) 0.000 pts
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 E:Considerations in scenario selection (3)
allLOBs.non-historical.downturns
494
E (2017.Spring 22.) 0.000 pts
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 E:Considerations in scenario selection (3)
allLOBs.non-historical.downturns
- Scenarios should cover all important BUSINESS & PRODUCT lines
- Create NON-HISTORICAL scenarios (events that haven’t happened but COULD happen)
- Severe & sustained DOWNTURNS (includes large losses, loss of reputation, legal problems,..)
498
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 F:Focus areas in response to financial market turmoil (5)
R(Sec)RCC
498
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 F:Focus areas in response to financial market turmoil (5)
R(Sec)RCC
- Risk mitigation
- S&W (Securitization & Warehousing)
- Reputation (reputational risk)
- Credit risk (& Counter-party Risk)
- Concentration risk
500
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 G:OSFI’s considerations in assessing stress-test program (4)
500
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 G:OSFI’s considerations in assessing stress-test program (4)
- APPROPRIATENESS:
- Are scenarios appropriate for institution’s risk profile
- VIABILITY:
- Are scenarios included that compromise viability
- FREQUENCY:
- Is stress-tesing frequent enough for timely management action
- SEVERE SHOCKS:
- Do scenarios include severe shocks & sustained downturns)
501
E (2016.Fall 20c.i) 0.500 pts
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 Glossary:Describe & contrast scenario with sensitivity testing
complexity & resources
501
E (2016.Fall 20c.i) 0.500 pts
OSFI.STRESS EFG (Glossary): METHODS, FOCUS, SUPERVISION
Qz-3 Glossary:Describe & contrast scenario with sensitivity testing
complexity & resources
- SCENARIO-TESTING:
- Significant changes to risk factors
- Observe future state including ripple effects & management actions over a longer time horizon
- More complex & comprehensive
- SENSITIVITY-TESTING:
- Incremental changes to risk factors
- Shock is more immediate & time horizon shorter
- Simpler fewer resources required
502
E (2017.Fall 1a.) 0.750 pts
McD A: Introduction
Qz-1 intro:Sect 91 (BNA Act): identify FEDERAL areas of exclusive authority (this is not specific to insurance) (6)
502
E (2017.Fall 1a.) 0.750 pts
McD A: Introduction
Qz-1 intro:Sect 91 (BNA Act): identify FEDERAL areas of exclusive authority (this is not specific to insurance) (6)
- Regulation of (trade, commerce)
- Taxation
- Banking
- (bankruptcy, insolvency)
- Aliens & naturalization
- Criminal law
503
E (2017.Fall 1b.i) 0.375 pts
McD A: Introduction
Qz-1 intro:Sect 92 (BNA Act): identify PROVINCIAL areas of exclusive authority (this is not specific to insurance) (4)
503
E (2017.Fall 1b.i) 0.375 pts
McD A: Introduction
Qz-1 intro:Sect 92 (BNA Act): identify PROVINCIAL areas of exclusive authority (this is not specific to insurance) (4)
- Provincial taxes
- Civil property rights
- Hiring & supervising provincial employees
- Operating jails & hospitals
504
McD A: Introduction
Qz-1 intro:Define intra vires, ultra vires
504
McD A: Introduction
Qz-1 intro:Define intra vires, ultra vires
- INTRA VIRES: within the powers of a particular Govt
- ULTRA VIRES: beyond the powers of a particular Govt
505
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Facts (1881)
fire ch5
505
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Facts (1881)
fire ch5
- Insurer disuptes ON’s Fire Insurance Act
- The Act required certain statutory conditions for fire policies in ON
506
E (2012.Fall 2a.i) 1.000 pts
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Issues (Recall: Citizen’s - ultra)
regulation of trade, deprive status & capacity
506
E (2012.Fall 2a.i) 1.000 pts
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Issues (Recall: Citizen’s - ultra)
regulation of trade, deprive status & capacity
- ISSUE 1:
- Is ON Fire Act ULTRA VIRES? (relates to regulation of trade, which is federal)
- ISSUE 2
- Insurer claims province can’t legislate to deprive federally incorporated insurer of status & capacity
507
E (2012.Fall 2a.ii) 0.250 pts
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Ruling-JCPC on issue #1 (Judicial Committee of the Privy Concil)
trade regulation is INTER-provincial not intra-provincial
507
E (2012.Fall 2a.ii) 0.250 pts
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Ruling-JCPC on issue #1 (Judicial Committee of the Privy Concil)
trade regulation is INTER-provincial not intra-provincial
- Ruling (Issue 1):
- ON Fire Act is INTRA VIRES
- Reason:
- Federal government can’t regulate an insurer operating in a single province
- trade means INTER-provincial (not INTRA-provincial)
508
E (2012.Fall 2a.iii) 0.250 pts
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Ruling-JCPC on issue #2
508
E (2012.Fall 2a.iii) 0.250 pts
McD A: Introduction
Qz-2 Citizens Ins v Parsons:Ruling-JCPC on issue #2
- Ruling (Issue 2)
- Status & capacity UNAFFECTED
- Insurers are all treated equally, regardless of where they were incorporated
509
E (2018.Fall 2a.i) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB): Facts (1916)
federal license required..except..
509
E (2018.Fall 2a.i) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB): Facts (1916)
federal license required..except..
- (1910) The Federal Insurance Act required a Federal license of all insurers..
- ..EXCEPT IF (incorporated by Province) AND (operating solely in Province)
510
E (2018.Fall 2a.ii) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Issues
intra-vires?
510
E (2018.Fall 2a.ii) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Issues
intra-vires?
- Is this version of the Federal Insurance Act ‘intra vires’?
511
E (2018.Fall 2a.iii) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Ruling - JCPC (Judicial Committee of the Privy Council)
..licensing system..
511
E (2018.Fall 2a.iii) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Ruling - JCPC (Judicial Committee of the Privy Council)
..licensing system..
- Licensing provisions are ‘ultra vires’:
- Regulation of trade/commerce didn’t extend to a licensing system of a particular trade
- Trespasses on Provincial authority in civil rights
- (not covered by Federal power to legislate for Peace, Order, Good Government)
512
E (2018.Fall 2a.iv) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Implication-Canada
capacity-right
512
E (2018.Fall 2a.iv) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Implication-Canada
capacity-right
- A provincial insurer has the capacity, but not the right to operate in another Province
- (need permission from other province)
- Federal insurer has the capacity and the right to operate in another province
- These are the 2 ways an insurer can operate in more than 1 province
513
E (2018.Fall 2a.v) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Implication-Foreign
513
E (2018.Fall 2a.v) 0.100 pts
McD A: Introduction
Qz-2 Insurance Reference Case:AG(Can) v AG(AB) - Implication-Foreign
- Federal government can require a federal license for a foreign insurer
- (even if the foreign insurer is operating in only 1 province)
514
McD A: Introduction
Qz-2 BC Public Auto:CIC v AG(BC): Facts (3)
public auto
514
McD A: Introduction
Qz-2 BC Public Auto:CIC v AG(BC): Facts (3)
public auto
- BC legislature establishes compulsory public auto insurance plan
- Legislature refuses license renewal of private insurers
- Insurers sue
515
McD A: Introduction
Qz-2 BC Public Auto:CIC v AG(BC): Arguments
515
McD A: Introduction
Qz-2 BC Public Auto:CIC v AG(BC): Arguments
- Insurers claimed BC legislation is ULTRA VIRES for 2 reasons:
- It relates to regulation of trade, which is federal
- Province can’t legislate to deprive federally incorporated insurer of status &capacity
516
McD A: Introduction
Qz-2 BC Public Auto:CIC v AG(BC): Rulings (Supreme Court)
516
McD A: Introduction
Qz-2 BC Public Auto:CIC v AG(BC): Rulings (Supreme Court)
- BC legislature acted within its powers (legislation is INTRA VIRES)
517
E (2014.Spring 1c.i) 0.500 pts
McD A: Introduction
Qz-3 supp:Identify of examples FEDERAL regulation/legislation regarding insurer solvency (5)
CIRC-P
517
E (2014.Spring 1c.i) 0.500 pts
McD A: Introduction
Qz-3 supp:Identify of examples FEDERAL regulation/legislation regarding insurer solvency (5)
CIRC-P
- CONDITIONS for entering business
- INVESTMENTS
- Regular REPORTING
- CALCULATION of assets & reserves
- PROTECT policy holders
518
E (2018.Fall 1ab.) 1.500 pts
McD A: Introduction
Qz-1 supp:Areas & matters under PROVINCIAL insurance legislation/regulation
518
E (2018.Fall 1ab.) 1.500 pts
McD A: Introduction
Qz-1 supp:Areas & matters under PROVINCIAL insurance legislation/regulation
- CONTRACT MATTERS: (ppp-ird)
- (policy contents), (policy terms), (premium payment), (insurable interest), (reinstatement), (designation of beneficiaries)..
- TRANSACTION MATTERS: (AUC)
- (Agent licensing), (Unfair practices), (Claims handling)
520
E (2018.Fall 2b.) 1.000 pts
McD A: Introduction
Qz-3 supp:OSFI licensing requirements for domestic insurers (for Minister of Finance to approve letters patent) (6)
$(plan, record, competence, jobs) & fair treatment by foreign owners
520
E (2018.Fall 2b.) 1.000 pts
McD A: Introduction
Qz-3 supp:OSFI licensing requirements for domestic insurers (for Minister of Finance to approve letters patent) (6)
$(plan, record, competence, jobs) & fair treatment by foreign owners
- Financial resources (must be sufficient)
- Business plan (detailed & realistic)
- Business record of applicants (check for past bankrupticies)
- (character, competence, experience) of management
- Positive effect on Canadian financial system (jobs, GDP growth)
- If owned by a foreign parent, OSFI must be satisfied that subsidiary will be treated fairly
521
McD A: Introduction
Qz-3 supp:Identify reasons for insurance regulation in Canada (3)
(Prevent..)-(Prevent..)-(..EcoImpact..)
521
McD A: Introduction
Qz-3 supp:Identify reasons for insurance regulation in Canada (3)
(Prevent..)-(Prevent..)-(..EcoImpact..)
- PREVENT insolvencies
- PREVENT undesirable business practices
- Consider ECONOMIC IMPACT on Canada
522
E (2017.Spring 1b.) 0.500 pts
McD A: Introduction
Qz-3 supp:Identify of examples FEDERAL regulation/legislation regarding insurer solvency (5)
CIRC-P
522
E (2017.Spring 1b.) 0.500 pts
McD A: Introduction
Qz-3 supp:Identify of examples FEDERAL regulation/legislation regarding insurer solvency (5)
CIRC-P
- CONDITIONS for entering business
- INVESTMENTS
- Regular REPORTING
- CALCULATION of assets & reserves
- PROTECT policy holders
523
ORSA (I,II,III): INTRODUCTION, SCOPE, ERM
Qz-1 intro:What is the general goal of ORSA
(risk profile)-(capital needs)
523
ORSA (I,II,III): INTRODUCTION, SCOPE, ERM
Qz-1 intro:What is the general goal of ORSA
(risk profile)-(capital needs)
- Enhance insurers’ understanding of the relationship between (risk profile, capital needs)
524
ORSA (I,II,III): INTRODUCTION, SCOPE, ERM
Qz-1 intro:Does OSFI approve an insurer’s ORSA
524
ORSA (I,II,III): INTRODUCTION, SCOPE, ERM
Qz-1 intro:Does OSFI approve an insurer’s ORSA
- NO, but OSFI will REVIEW a company’s ORSA as part of its assessment of the company
525
ORSA (I,II,III): INTRODUCTION, SCOPE, ERM
Qz-1 ERM:What is the relationship between ERM (Enterprise Risk Management) & ORSA
525
ORSA (I,II,III): INTRODUCTION, SCOPE, ERM
Qz-1 ERM:What is the relationship between ERM (Enterprise Risk Management) & ORSA
- (ERM, ORSA) should be WELL-INTEGRATED so that (analysis, results) are consistent between them
526
E (2015.Fall 23a.) 1.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Identify ORSA’s key elements (5)
RRR(M&R)(I&O)
526
E (2015.Fall 23a.) 1.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Identify ORSA’s key elements (5)
RRR(M&R)(I&O)
- RISK identification & assessment
- RELATE risk to capital
- RESPONSIBILITIES of Board of Directors
- (M&R) MONITORING & REPORTING of risks
- (I&O) INTERNAL controls & OBJECTIVE review
527
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘risk identification & assessment’
id & assess materiality..
527
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘risk identification & assessment’
id & assess materiality..
- Identify & assess the MATERIALITY of forseeable & emerging risks
528
E (2018.Spring 20c.) 0.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘relating risk to capital’
set ICT..to withstand..
528
E (2018.Spring 20c.) 0.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘relating risk to capital’
set ICT..to withstand..
- Set ICT (Internal Capital Target) using stress-testing techniques
- Must WITHSTAND a specified loss without falling below (Supervisery Capital Requirements)
529
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘responsibilities of Board of Directors’ (see paper p8, orange box)
reivew reasonableness & appropriateness..
529
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘responsibilities of Board of Directors’ (see paper p8, orange box)
reivew reasonableness & appropriateness..
- REVIEW
- Reasonableness & appropriateness
- OF
- Risk profile & capital requirements
- IN
- The context of board-approved risk appetite & risk tolerance
530
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘Monitoring & Reporting’
annual reports to..
530
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘Monitoring & Reporting’
annual reports to..
- ANNUAL REPORTS to (Board of Directors, Senior Managment) on risk profile & capital management
531
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘Internal control & Objective review’
review for accuracy..objective reviewer is..
531
ORSA IV: KEY ELEMENTS
Qz-2 keys:Describe the ORSA key element ‘Internal control & Objective review’
review for accuracy..objective reviewer is..
- REVIEW for (accuracy, integrity, reasonableness)
- OBJECTIVE REVIEWER: internal or external auditor OR skilled professional not involved in the ORSA process
532
E (2015.Fall 23b.) 0.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Is ORSA process the same for all federal insurers
532
E (2015.Fall 23b.) 0.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Is ORSA process the same for all federal insurers
- YES and NO:
- Key elements are the same (list them)
- BUT
- Specifics differ by company DEPENDING on risk profile & NSC (Nature/Scale/Complexity) of operations
533
E (2016.Fall 24e.) 0.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Should ORSA be used to set ICT (Internal Capital Target)
533
E (2016.Fall 24e.) 0.500 pts
ORSA IV: KEY ELEMENTS
Qz-2 keys:Should ORSA be used to set ICT (Internal Capital Target)
- YES:
- An important part of ORSA is to set ICT (Internal Capital Target) since ICT considers insurer-specific risks
534
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 SupRev:What is the relative importance of (quantitative, qualitative) aspects of ORSA
534
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 SupRev:What is the relative importance of (quantitative, qualitative) aspects of ORSA
- Quantitative & qualitative aspects are equally important
535
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 APPENDIX:Regarding ORSA key element #2, ‘relating risk to capital’ , identify possible approaches to calculating ICT (Internal Capital Target) (3)
int.simp.qual
535
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 APPENDIX:Regarding ORSA key element #2, ‘relating risk to capital’ , identify possible approaches to calculating ICT (Internal Capital Target) (3)
int.simp.qual
- COMPLEX INTERNAL MODEL: for complex risks
- SIMPLE MODEL: with conservative assumptions
- QUALITATIVE: includes expert judgment for difficut-to-quantify risks
536
E (2018.Spring 20a.i) 0.250 pts
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 supp:Describe similarities between DCAT & ORSA (3)
if in doubt, start by listing key principles for both DCAT & ORSA
536
E (2018.Spring 20a.i) 0.250 pts
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 supp:Describe similarities between DCAT & ORSA (3)
if in doubt, start by listing key principles for both DCAT & ORSA
- Both are concerned with risk identification & control
- Both are concerned with capital requirements
- Both are submitted to BoD (Board of Directors) & regulators
537
E (2017.Fall 21b.) 1.500 pts
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
supp: Describe differences between DCAT & ORSA (3)
guidelines. methods.report
537
E (2017.Fall 21b.) 1.500 pts
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
supp: Describe differences between DCAT & ORSA (3)
guidelines. methods.report
- GUIDELINES:
- DCAT: uses CIA SOPs (Statement of Principles)
- ORSA: uses OSFI guidelines
- METHODS:
- DCAT: quantitative only
- ORSA: qualitative & quantitative
- REPORT:
- DCAT: by AA (Appointed Actuary)
- ORSA: management responsibility
- FORECAST PERIOD
- DCAT: 3 years
- ORSA: long enough to capture relevant material risks (Ex: 3-5 years)
538
E (2018.Fall 25c.) 2.000 pts
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 supp:Identify advantages of ORSA over MCT
ORSA does a lot more than MCT
538
E (2018.Fall 25c.) 2.000 pts
ORSA V: INTERACTION OF ORSA with SUPERVISORY REVIEW
Qz-3 supp:Identify advantages of ORSA over MCT
ORSA does a lot more than MCT
- ORSA:
- |1] includes ALL material rsks
- |2] uses stress-testing to set ICT(Internal Capital Target)
- |3] qualitative (as well as quantitative)
- |4] admits assessment of internal controls
- MCT: doesn’t do these things