MCT Flashcards
minimum supervisory target for MCT ratio
150%
What’s the MCT ratio requirement for federally regulated insurers?
100%
Are insurers required to meet capital requirements at all time
yes
Identify the main components of MCT capital required
IMCO
- Insurance risk
- Market risk
- Credit risk
- Operational risk
Define MCT insurance risk
risk of loss from potential for claims from PHs and beneficiaries
Define MCT market risk
risk of loss from changes in prices in various markets
Define MCT credit risk
risk of loss from counterparty’s potential inability or unwillingness to fully meet contractual obligations due to the insurer
Define MCT operational risk
risk of loss from inadequate or failed internal processes, people, systems or from external events
define target capital required (statistical defn)
capital level corresponding to CTE 99% on the loss distribution over 1 year time horizon
CTE = conditional tail expectation
proxy of capital available that appears in the statement of financial statement
total equity
principles of allocation regarding MCT capital requirements
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
traditional arrangement for MCT capital requirements for business combinations effective before 6/30/2019
CSM arising from favorable development can be included in capital available
qualitative considerations for capital available
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
main components of MCT capital available
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)
subcomponents of category A capital
RC-CORNA
- Residual Interest (non stock)
- Common shares
- Contributed surplus
- Other capital
- Retained earnings
- Nuclear and other reserves
- AOCI
should dividends paid to stockholders be removed from capital available?
yes
describe MCT capital composition limits
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
which regulatory adjustment to capital available is an addition?
CSM
which regulatory adjustment to capital available is an addition or subtraction?
adjustments to owner occupied property valuations
2 uncertainties required for a risk to be considered as insurance risk
Uncertainty from amount and timing of payments
4 subcomponents of insurance risk
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
how is diversification risk accounted regarding MCT insurance risk?
- 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…)
2 risks of holding a reinsurance contract with an reinsurer
- 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
define SIR (Self Insured Fund)
portion of a loss payable by the policy holder
condition for admitting recoverability of SIRs
OSFI must be satisfied of collectability - may require collateral
subcomponents of market risk
MR. iferro
- interest rate
- foreign exchange
- equity
- real estate
- right of use asset 使用权资产
- other market
briefly describe what the risk factor is for calculating margin for credit risk
the risk factor either
- corresponds to the external credit rating of the counterparty
- represents a prescribed factor determined by OSFI
what are off balance sheet exposures?
risk exposures that are not listed on a company’s BS
identify examples of off balance sheet exposures
- structured settlements: claimant agrees to receive settlements in periodic payments rather than lump sum
- LOC (Letters of Credits)
- NOD (Non owned Deposit)
- derivatives
3 sub-categories of operational risk
- 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
formula for operational risk margin
CapReq(OpnRsk)
= min [ 30% x CR(0), sum(A components) + max(B components) ]
is legal risk included in operational risk?
yes
identify 2 risks that are excluded from MCT operational risk
RS
- reputation risk
- strategic risk
describe the purpose of cap on operational risk of 30% *CR(0)
to dampen operational risk for business that satisfies these conditions:
- high volume
- low complexity
identify 3 scenarios linked rapid premium growth
- mergers
- new LOB
- changes to products or UW criteria
what are the 2 key drivers used to determine operational risk margin?
- capital required
- premiums
subject to a cap
describe the impact of unregistered reinsurance on MCT operational risk
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
define diversification credit
a reduction to capital required recognizing that not all risk categories are likely to suffer their max loss simultaneously
does diversification credit consider correlation between and within all risk components?
no
- credit and market risk are summed to get asset risk
- the diversification credit considers the correlation between asset and insurance risk
formula for diversification credit
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
margin LIC formula
1.1 x Σ (risk factor) x [ net LIC(issued) excl. RANF – AIC(re held) excl RANF ]
margin unexpired coverage formula
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
net unexpired coverage formula
- net unexpired coverage = (unexpired coverage for insurance contracts issued) – (unexpired coverage for reinsurance contracts held)
GMM unexpired coverage for insurance contracts issued
PV(estimate of future cash flows excluding premium, reinsurance commission and acquisition expense cash flows)
PAA unexpired coverage for insurance contracts issued
( LRC – LC + unamortized insurance acquisition cash flows + unamortized reinsurance commissions + premiums receivable ) x ELR + costs
GMM unexpired coverage for reinsurance contracts held
PV(estimate of future cash flows for current and future reinsurance contracts held)
PAA unexpired coverage for reinsurance contracts held
( A + C + P1 + P2 ) x ELR – ( P3 + P4 )
