CIA DCAT Flashcards

Question

Discuss Premium risk | Premium volume significantly lower than expected

Answer 1

Adverse scenarios • Entry of new competitor • Increased competitiveness in a market • Loss of a key distributor or client • Action by an influential entity affecting reputation • Inability to implement planned rate increases • Non-competitive premium rates Ripple effects • Increase in LR due to soft market, inadequate pricing • Increase in fixed expense ratio • Shift in portfolio MOB • Increase in Re cost as % of subject premium • Forced sale or liquidation of assets ``` Management actions • Implementing rate change • Reducing personnel • Identifying other distributor • Changing Re coverage • UW actions in market subject to increased competition • Changing MOB • Adj investment portfolio to mitigate CF strains ```

Answer 2

Adverse scenarios • Withdrawal of major competitors from a market • Appointment of a key distributor • Unexpected new business from a large client • Action by an influential entity affecting reputation • Unexpected success in a new market/product • Premium rates set too low ``` Ripple effects • Higher LR on new business due to inadequate pricing • Shift in portfolio MOB • Higher expenses • Increased PACICC and pool assessments • Increased Re costs ``` ``` Management actions • Implementing rate changes • UW actions in unprofitable market • Review the distribution channel • Reducing certain type of expenses (advertising) • Using Re to mitigate capital strain ```

Answer 3

``` Adverse scenarios • Increase in Re rates or reduction in Re commissions • Reduction in capacity • Disputes over policy provision • Re insolvency: -Affiliated vs unaffiliated Re -Registered vs unRe -Concentration of Re -Rating of Re ``` Ripple effects • Increase in Re rate due to replacement • Reduced availability of Re ``` Management actions • Changing Re structure • Diversifying participants in the Re program • Increase retention limit • Changing Re • Reducing primary policy limits ```

Answer 4

Can lead to changes in: • Market value of debt and equity • Default rate on debt securities • Match CFs on assets and liabs Adverse scenarios • Significant change in the yield curve • Increase in default rate on debt securities • Significant change in foreign exchange rates • Decrease in return or value of equities, real estate, subsidiaries or other assets Ripple effect • Forced sale or liquidation of assets • Significant CF (+/-) affecting liquidity position • Rating agency downgrade • Negative change on derivative position • Counterparty default on derivative • Liquidity crisis caused by large sustained default losses • Increase in freq/sev of claims from worsened economy • Change in discount rate used for calculating APV of policy liabs ``` Management actions • Selling or reinvesting assets • Changing the investment strategy • Repositioning derivative tools • Implementing rate increases • Reducing costs through layoffs, consolidation, etc. ```

Answer 5

Adverse scenarios • Rate freeze by regulator • Change to regulation regarding rating variables • Change in prescribed levels of insurance coverage • Change in regulatory solvency standards • Nationalization/privatization of a LOB • Change in taxation rates or rules ``` Ripple effects • Deterioration of LR • Reduced availability of Re • Increased volume of industry pools • Increased regulatory monitoring • Forced sale or liquidation of assets • Problems with Re coverage • Increase Re rates or non-availability ``` Management actions • Reducing volume or business written • Review target MOB by LOB or jurisdiction • Review Re coverage • Creating a separate company or distribution channel

Answer 6

``` Adverse scenarios • Structured settlement • Contingent liabs • LOC and pledged assets • Pension under-funding • Derivative instruments -Market risk (Liquidity risk, Basis risk) -Credit risk -Management risk -Legal risk ``` Ripple effects • Forced sale or liquidation of assets • Significant CF affecting liquidity position ``` Management actions • Selling or reinvesting assets • Changing the Re strategy • Repositioning of derivative tools • Reducing costs — layoff, consolidation • Changing pension plan form ```

Answer 7

Adverse scenarios • Increased reliance on parent financial support • Increase in financial support to parent • High level of dependency on group operational resources • Rating agency downgrade of the group Ripple effects • Management focus on group • Need to provide for disruption of service • Regulator action to protect PH Management actions • Find alternative source of fund for support • Adj premium volume and MOB • Review Re coverage to mitigate capital strain • Review target MOB • Review type of products offered • Selling or reinvesting assets