Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Exam 6C - F2022 > OSFI.Eqk > Flashcards

OSFI.Eqk Flashcards

1
Q

What is a broad 3-point plan for managing earthquake exposure?

A

Measure
Monitor
Limit earthquake exposure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define PML (Probable Maximum Loss).

A

$-value of loss of a major earthquake is unlikely to exceed ($-loss expected only once-per-X-years).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define Gross and Net PML.

A

Gross: AFTER deductible, BEFORE reinsurance
Net: AFTER deductible, AFTER reinsurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the 5 key principles for managing earthquake exposure?

A
  1. Risk management
  2. Data management
  3. Models
  4. PML
  5. Financial resources & contingency Plan
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Briefly describe the risk management key principle.

A

Earthquake exposure risk management policies are overseen by Senior Management.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Briefly describe the Data Management key principle.

A

Data required is MORE than traditional ratemaking (attention to consistency, accuracy, completeness due to uncertainty in earthquake exposure management)

Must address data Integrity, Verification, Limitations (IVL)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Briefly describe the Models key principle.

A

Understand assumptions, methods, limitations of earthquake models.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Briefly describe the PML (Probable Maximum Loss) key principle.

A

Total expected ultimate cost

Includes considerations for data quality, non-modeled exposures, model uncertainty, multi-region exposure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Briefly describe the Financial Resources & Contingency Plan key principle.

A

Financial Resources: quantification of how financial resources cover PML

Contingency Plan: how to continue efficient business operations after disaster

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Identify 2 items that should be documented for earthquake risk management.

A
  1. Risk appetite and risk tolerance of insurer.

2. Data management framework

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Identify and briefly describe the 7 best practices for earthquake modelling.
(DAQKD-UP)

A
  1. Document use of model within risk management program
  2. Alternatives: explain why a particular model is used vs alternatives
  3. Qualified staff needed to run in-house models regularly
  4. Knowledge of assumptions, methods and limitations of model
  5. Data granularity & quality is appropriate
  6. Uncertainty: how it affects capital adequacy and reinsurance requirements
  7. PML: explain differences between models and subsequent model adjustments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Identify 2 uses of earthquake models aside from PML calculation.

A
  1. Make U/W decisions

2. Monitor exposure-accumulations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Identify 4 sound practices for earthquake model version.

A
  • use more than 1 model
  • ensure timely updates of material changes to model (within 1 year of change)
  • understand assumptions, methods, limitations of vendor software for PML calculation
  • if in-house PML model is used, should compare result to alternate models
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Identify 3 sound practices for earthquake model validation.

A
  • compare modeled losses with actual losses
  • compare tail losses with market price for reinsurance
  • use global data to supplement limited Canadian earthquake data
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Identify 4 non-modeled exposures to consider when calculating PML.

A
  1. Exposure growth between date of data and relevant exposure period.
  2. Consider adequacy of ITV (Insurance-to-Value)
  3. Consider GRC (Guaranteed Replacement Cost)
  4. Increased seismicity after large event
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Identify 4 financial resources that can be used to support the PML for an earthquake.

A
  1. Capital and surplus from B/S (max 10% of capital and surplus)
  2. Reinsurance for cat
  3. Earthquake Premium Reserve (EPR)
  4. Capital market financing
17
Q

How might management adjust for low data quality in earthquake PML estimate?

A

May add a margin of safety to the PML estimate (not an excuse to ignore data quality)

18
Q

Identify 2 examples of model uncertainty.

A
  • uncertainty associated with conversion from location-specific ground motion to actual damage levels
  • model assumptions are being continuously updated & refined
19
Q

How might management adjust for model uncertainty in earthquake PML estimate?

A

May add a margin of safety to the PML estimate

20
Q

Identify 2 disadvantages of using the maximum of (BC, QC) exposures for multi-region exposures.

A
  1. Understates risk for insurers with exposure in both regions
  2. Ignores earthquake elsewhere which could be material
21
Q

How should PMLs be reported for Canadian versus foreign insurers with exposure outside Canada?

A

BoD and senior management would report PMLs to OSFI as follows:

  • Canadian insurers report PMLs based on worldwide exposure
  • foreign insurers report PMLs based on Canada-wide exposure
22
Q

Identify a restrictive condition on earthquake exposure financial resources for reinsurance coverage.

A

When including non-cat reinsurance must consider ‘per event’ limits and other events that may exhaust coverage.

23
Q

Identify a restrictive condition on earthquake exposure financial resources for capital market financing.

A

OSFI prior approval is required before recognition as a financial resource (under MCT guidelines)

24
Q

Identify a restrictive condition on earthquake exposure financial resources for capital & surplus.

A

Limited to a maximum of 10% of capital & surplus

25
Q

Identify a restrictive condition on earthquake exposure financial resources for EPR.

A

Must not exceed countrywide PML500

26
Q

Identify 3 key principles in managing earthquake risk and briefly describe how a failure in each may be leading to varying results in PML from one year to another.

A

PML Estimates: the PML estimate of this company probably does not reflect total ultimate expected cost to insurer and consider data quality, non-modeled exposures or less, exposure to multiple regions and model uncertainty, then the PML estimates won’t be accurate and reliable.

EQ models: the company is probably not using the models with a sound knowledge of its underlying assumptions and methodologies and with caution to reflect uncertainty in such estimate, which cause the PML estimate to vary significantly from one year to the next.

EQ data quality: the company is probably not capturing appropriate data and regularly test data for consistency, accuracy and completeness which cause PML estimate to vary.

27
Q

Briefly describe 4 practices a company should use to improve the earthquake risk estimation process and achieve strong catastrophic risk management.

A
  • Investment in technology to improve data quality
  • Auditing of data by an independent party responsible for collection and coding of data
  • Implement contingency plans to ensure claim’s handling and adequacy of staff
  • Testing the output of models with actual data
28
Q

What are the 2 OSFI’s earthquake exposure reporting requirements.

A
  • File Earthquake Exposure Data form annually

- if no material exposure then submit letter stating so

29
Q

What are the 2 OSFI’s earthquake exposure supervisory requirements?

A

If an insurer has material earthquake exposure:

  1. Insurer must submit earthquake risk management policies
  2. Must submit DCAT report that includes earthquake exposure scenario (or provide reason for not including)
30
Q

What is the difference between OSFI’s earthquake exposure reporting & supervisory requirements?

A
  • for reporting purposes: just submit the standard Earthquake Exposure Data form
  • for supervisory purposes: must submit comprehensive risk management policies
31
Q

Identify 1 OSFI’s supervisory option when an insurer’s earthquake exposure risk management principles are not being followed.

A

OSFI may adjust capital or asset requirements or TSR (Target Solvency Ratio)

32
Q

Identify the 3 duties of senior management regarding earthquake exposure risk management.

A
  • implement risk management plan & internal controls
  • discretion to increase PML from model due to low data quality OR model uncertainty
  • report compliance and PML
33
Q

What are the 2 included items in a senior officer’s regular report to senior management regarding earthquake exposure?

A
  • state compliance with risk management policies (except where noted)
  • explain calculation of PML with details of supporting financial resources
34
Q

Identify the 2 duties of the Board of Directors regarding earthquake exposure risk management.

A
  1. Oversight of risk management plan

2. Ensuring adequacy of internal controls

35
Q

Identify 3 ways of testing earthquake data

A
  1. Sum data by category & review stats
  2. Calculate year-over-year exposure changes
  3. Use sensitivity tests to guage materiallity level

Exam 6C - F2022 (58 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions