Odomirok ch19 pg 149 201 Risk Based Capital Question What is the Trend Test and

Odomirok ch19 pg 149 201 risk based capital question

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Odomirok - ch19 (pg 149-201) – Risk Based Capital Question: What is the Trend Test and how does it work? Answer: The trend test is an early warning of companies that may be on a path to incur an RBC ratio below 200%, thereby triggering the company action level. Companies meeting the trend test criteria are required to comply with the company action level requirements despite having a RBC ratio in excess of 200%. A company having a RBC ratio of between 200% and 300% and a combined ratio greater than 120% are subject to a trend test. The combined ratio is calculated as the sum of: (1) Loss and LAE ratio = calendar year net incurred loss and LAE / net earned premium from the Statement of Income (2) Dividend ratio = policyholders dividends / net earned premium from the Statement of Income (3) Expense ratio = (underwriting expenses incurred + aggregate write-ins for underwriting deductions from the Statement of Income)/ net written premiums from the U&IE. Odomirok - ch19 (pg 149-201) – Risk Based Capital Question: In the Future of RBC, what does the NAIC believe about universal target capital levels? Answer: The NAIC believes these target levels should be different for type/line of business due to inherently different risks and credibility issues around developing distributions that make the validation of safety levels difficult. Odomirok - ch19 (pg 149-201) – Risk Based Capital Question: Explain interest rate risk, the charge for it and it’s RBC category? Answer: Adverse effects on a company’s statutory surplus that may be caused by a shift in market interest rates. There is no charge for interest rate risk. No RBC category. Odomirok - ch19 (pg 149-201) – Risk Based Capital Question: What is the RBC charge for receivables arising from intercompany pooling arrangements? Risk category? Answer: No charge, no risk category. Odomirok - ch19 (pg 149-201) – Risk Based Capital Question: When calculationg the reserving risk RBC charges, why account for Company Differences? Answer: Companies differ in their reserve estimation procedures, so some companies report less adequate reserves than others and show adverse development in subsequent years. In addition, companies differ in the types of risks they write.
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Page 9 of 11 CAS, C2: Using RBC formulas and IRIS ratios, evaluate an insurer’s financial health. Odomirok - ch19 (pg 149-201) – Risk Based Capital Question: What was a major reason the RBC standards and requirements were developed? Answer: The hesitancy of many state insurance departments to take action against financially troubled companies,.
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Page 10 of 11 CAS, C2: Using RBC formulas and IRIS ratios, evaluate an insurer’s financial health. Odomirok – ch20 (pg 203-205) – IRIS Ratios Question: What are the IRIS tests intended for? What are they not intended for? Answer: Intended to assist state insurance departments to evaluate the financial condition of insurance companies. * Odomirok – ch20 (pg 203-205) – IRIS Ratios Question: Describe the Analyst Team System and its function. Answer: The Analyst Team, which includes financial examiners and analysts from all four geographic zones of the NAIC, performs an analysis of the IRIS ratios, as well as other solvency monitoring tools such as RBC, to identify companies requiring immediate attention by regulatory authorities Based on the analysis results, the Analyst Team categorizes companies into three levels: 1. Level A: companies requiring immediate attention and financial analysis by regulatory officials
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