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18 Cards in this Set
- Front
- Back
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Minimum capital requirement |
= (Capital for insurance risk
+ Capital for market risk + Capital for Credit risk + Capital for Operational risk - Diversification Credit) / 1.5 |
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Capital required for insurance risk |
-Capital required for unpaid claims & prem liab -Catastrophe reserves -Margin required for reinsurance ceded to unregistered reinsurers |
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Capital required for market risk |
Capital required for: -Interest rate risk -Foreign exchange risk -Equity risk -Real estate risk -Other market risk exposures |
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Capital required for credit risk |
Capital required for: -Counterparty default risk for balance sheet assets -Counterparty default risk for off-balance sheet exposures -Collateral held for unregistered reinsurance and self-insured retention |
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MCT level should be above 100% to cover |
-Volatility in markets & economic conditions -Innovations in the industry -Consolidation trends -International developments -Risks not explicitly addressed (fraud) -Unexpected losses beyond min MCT -Capital needs through ongoing market access |
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When is MCT audit filed? |
Separate audit report, to be filed no later than 90 days after P&C fiscal year end |
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4 primary considerations for defining capital available for purposes of measure capital adequacy |
1. Permanence: period for which capital is available 2. Availability: fully paid and available to absorb losses 3. Absence of encumbrances & mandatory servicing costs 4. Subordination: to the rights of policyholders and creditors in an insolvency |
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BAAT net assets available |
= Total vested assets - Total net liabilities net of: -Recoverables from registered reinsurers -Recoverables from unregistered reinsurers -Other recoverables on unpaid claims -SIR recoverables -Unearned commissions -DPAE associated with accident & sickness |
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Adjustments to BAAT net assets available |
Additions: DPAE associated with commissions, premium taxes, Receivables from agents, poliyholders, brokers, etc Deductions: Recoverables from unregistered reinsurers not covered by LOC or deposits, unrealized gains, etc |
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Insurance Risk |
Risk arising from the potential for claims or payouts to be made to policyholders PV(losses) > Amounts estimated |
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Risks associated with insurance exposure |
1. Reserving risk associated with variation in claims provisions 2. UW risk incl. cat risk 3. Earthquake & nuclear risk 4. Risk associated with unregistered reinsurance |
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Margin for Unpaid claims |
Calculated by line of business (Net amount at risk - PfAD) * Risk factor |
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Margin for Premium Liabilities |
Calculated by line of business Max(Net Premium Liabilities - Pfad, 30% * Net WP for past 12m) * Risk factor |
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Margin for Capital Available for unregistered reinsurers |
[Unearned premiums ceded to assuming insurer + Outstanding losses recoverable from assuming insurer] * 15% |
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Earthquake reserve formula |
[Earthquake Premium Reserve (EPR) + Earthquake Reserve Component (ECR)] *1.25 |
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Nuclear Reserve |
100% of Net WP * 1.25 net of commission |
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Interest Rate Risk |
Risk of economic loss resulting from market changes in interest rates, and the impact on interest rate sensitive assets and liabilities. |
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Foreign Exchange Risk Margin |
Max [Aggregate net long position of each currency adjusted for hedges, Aggregate net short position] * 10% |
