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Exam 6 > MCT > Flashcards

MCT Flashcards

1
Q

minimum supervisory target for MCT ratio

A

150%

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2
Q

What’s the MCT ratio requirement for federally regulated insurers?

A

100%

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3
Q

Are insurers required to meet capital requirements at all time

A

yes

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4
Q

Identify the main components of MCT capital required

A

IMCO
- Insurance risk
- Market risk
- Credit risk
- Operational risk

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5
Q

Define MCT insurance risk

A

risk of loss from potential for claims from PHs and beneficiaries

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6
Q

Define MCT market risk

A

risk of loss from changes in prices in various markets

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7
Q

Define MCT credit risk

A

risk of loss from counterparty’s potential inability or unwillingness to fully meet contractual obligations due to the insurer

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8
Q

Define MCT operational risk

A

risk of loss from inadequate or failed internal processes, people, systems or from external events

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9
Q

define target capital required (statistical defn)

A

capital level corresponding to CTE 99% on the loss distribution over 1 year time horizon
CTE = conditional tail expectation

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10
Q

proxy of capital available that appears in the statement of financial statement

A

total equity

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11
Q

principles of allocation regarding MCT capital requirements

A

FACCS (~Facts)
- Free from bias
- Accurate when allocating revenue and costs
- Consistent with allocation methods used by the insurer for other business decision making purposes
- Consistent over time
- Systematic and reasonable

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12
Q

traditional arrangement for MCT capital requirements for business combinations effective before 6/30/2019

A

CSM arising from favorable development can be included in capital available

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13
Q

qualitative considerations for capital available

A

ASAP
- Availability: is the capital element fully paid and available to absorb losses?
- Subordination: is the capital element subordinated to
隶属于the rights of policy holders and creditors in an insolvency
- Absence: the extent to which capital element is free from mandatory payments r encumbrances
- Permanence: 持久性until when is a capital element available

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14
Q

main components of MCT capital available

A

Category ABC capital, non controlling interests in subsidiaries subject to certain conditions
(an ownership position wherein a shareholder owns less than 50% of outstanding shares and has no control over decisions)

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15
Q

subcomponents of category A capital

A

RC-CORNA
- Residual Interest (non stock)
- Common shares
- Contributed surplus
- Other capital
- Retained earnings
- Nuclear and other reserves
- AOCI

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16
Q

should dividends paid to stockholders be removed from capital available?

A

yes

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17
Q

describe MCT capital composition limits

A

MCT puts a limit on the amount of category B&C capital that can be included in capital available
2 rules:
1) B+C <= 40% (total CA - AOCI)
2) C <= 7% (total CA - AOCI)
不能有b或c太多，把他们两个占的量cap掉

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18
Q

which regulatory adjustment to capital available is an addition?

A

CSM

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19
Q

which regulatory adjustment to capital available is an addition or subtraction?

A

adjustments to owner occupied property valuations

20
Q

2 uncertainties required for a risk to be considered as insurance risk

A

Uncertainty from amount and timing of payments

21
Q

4 subcomponents of insurance risk

A

LUU 保险公司的人都穿lululemon+CAT
撸猫
- LIC (Liability for Incurred Claims): normal reserve amount
- Unexpired cov (includes CAT other than EQ and nuclear): claims not yet occured
- Unregistered reinsurance
- EQ and nuclear CAT

22
Q

how is diversification risk accounted regarding MCT insurance risk?

A
  • risk factors for each class of insurance contain an implicit diversification credit
  • this is based on the assumption that insurers have a well diversified portfolio.

insuranceclass: type of insurance coverage (liability…)

23
Q

2 risks of holding a reinsurance contract with an reinsurer

A
  • reinsurer won’t pay insurer what is owed
  • mis- assessment of required provision 条款. 对所需准备金的错误评估
24
Q

define SIR (Self Insured Fund)

A

portion of a loss payable by the policy holder

25
Q

condition for admitting recoverability of SIRs

A

OSFI must be satisfied of collectability - may require collateral

26
Q

subcomponents of market risk

A

MR. iferro
- interest rate
- foreign exchange
- equity
- real estate
- right of use asset 使用权资产
- other market

27
Q

briefly describe what the risk factor is for calculating margin for credit risk

A

the risk factor either
- corresponds to the external credit rating of the counterparty
- represents a prescribed factor determined by OSFI

28
Q

what are off balance sheet exposures?

A

risk exposures that are not listed on a company’s BS

29
Q

identify examples of off balance sheet exposures

A
  • structured settlements: claimant agrees to receive settlements in periodic payments rather than lump sum
  • LOC (Letters of Credits)
  • NOD (Non owned Deposit)
  • derivatives
30
Q

3 sub-categories of operational risk

A
  • sum (IMC)
  • premium volume & growth
  • intra group pooling: additional operational risk associated with pooling premiums within a group compared to a company that does not enter into transactions moving the premiums from a company to another within a group
31
Q

formula for operational risk margin

A

CapReq(OpnRsk)
= min [ 30% x CR(0), sum(A components) + max(B components) ]

32
Q

is legal risk included in operational risk?

A

yes

33
Q

identify 2 risks that are excluded from MCT operational risk

A

RS
- reputation risk
- strategic risk

34
Q

describe the purpose of cap on operational risk of 30% *CR(0)

A

to dampen operational risk for business that satisfies these conditions:
- high volume
- low complexity

35
Q

identify 3 scenarios linked rapid premium growth

A
  • mergers
  • new LOB
  • changes to products or UW criteria
36
Q

what are the 2 key drivers used to determine operational risk margin?

A
  • capital required
  • premiums
    subject to a cap
37
Q

describe the impact of unregistered reinsurance on MCT operational risk

A

when unregistered reinsurance goes up -> caprequired for operational risk goes up because:
- operational risk depends on: insurance and credit risk
- and insurance risk goes up because registered reinsurance is one of its components

38
Q

define diversification credit

A

a reduction to capital required recognizing that not all risk categories are likely to suffer their max loss simultaneously

39
Q

does diversification credit consider correlation between and within all risk components?

A

no
- credit and market risk are summed to get asset risk
- the diversification credit considers the correlation between asset and insurance risk

40
Q

formula for diversification credit

A

DC = A + I - SQRT( A^2 + I^2 + 2·R·A·I )
A = Asset risk = Credit risk + Market risk
I = Insurance risk
R = correlation between A&I, = 0.5 usually

41
Q

margin LIC formula

A

1.1 x Σ (risk factor) x [ net LIC(issued) excl. RANF – AIC(re held) excl RANF ]

42
Q

margin unexpired coverage formula

A

margin(unexpired coverage) = (risk factor) x MAX [ (net unexpired coverage) , 30% x (net premiums received past 12 months) ]
- net premiums received = premiums received net of associated reinsurance premiums paid

43
Q

net unexpired coverage formula

A
  • net unexpired coverage = (unexpired coverage for insurance contracts issued) – (unexpired coverage for reinsurance contracts held)
44
Q

GMM unexpired coverage for insurance contracts issued

A

PV(estimate of future cash flows excluding premium, reinsurance commission and acquisition expense cash flows)

45
Q

PAA unexpired coverage for insurance contracts issued

A

( LRC – LC + unamortized insurance acquisition cash flows + unamortized reinsurance commissions + premiums receivable ) x ELR + costs

46
Q

GMM unexpired coverage for reinsurance contracts held

A

PV(estimate of future cash flows for current and future reinsurance contracts held)

47
Q

PAA unexpired coverage for reinsurance contracts held

A

( A + C + P1 + P2 ) x ELR – ( P3 + P4 )

Exam 6 (58 decks)

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