New Question - RBC and SAO (may not be simple enough?)
Your coworker asks you to identify if they should pursue comments about material adverse development on a company. They don't have the full statement, but they do know the following:
- The ratio of Company Action Level Capital to Net Loss Reserve = 35%
- The RBC Ratio is 250%
Which of the following is correct?
[a] - Yes; pursue comments regarding MAD. The RBC Ratio is below 300% so commentary is suggested.
[b] - Yes; pursue comments regarding MAD if the Appointed Actuary didn't already address it.
[c] - No; do not pursue comments; the RBC Ratio is above 200% so no company action is required.
[d] - No; do not pursue comments; the ratio of Company Action Level Capital to Net Loss Reserves < 50% so no statements regarding MAD are necessary.
[e] - Not enough information.
[answer b is correct; use the Bright Line Indicator Test]
Name: TJ
Comments
SOLUTION 1: Use the Bright Line Indicator Test
https://battleacts6us.ca/wiki6us/Bright_Line_Indicator_Test
SOLUTION 2: Apply the Bright Line Indicator Test
We're also given RBC = 250% so:
Rearranging this gives:
For the Bright Line Indicator test we need the quantity (TAC - CAL) so moving one of the CAL's to the other side gives:
Now we can substitute 0.35 x NLR for CAL on the right side:
Condition [2] for the Bright Line Indicator Test requires:
And this is indeed satisfied because:
So based on the Bright Line Indicator Test, comments on MAD should be pursued.
I went about this a bit differently:
given:
Company Action Level Capital / Net Loss Reserve = .35
re-written:
2(Authorized Control Level Capital)/Net Loss Reserve = .35
so:
Net Loss Reserve = 5.7143(Authorized Control Level Capital)
given:
RBC ratio = 250%
re-written:
Total Adjusted Capital / Authorized Control Level Capital = 2.5
so:
Total Adjusted Capital = 2.5*(Authorized Control Level Capital)
Brightline indicator:
if 300% > RBC ratio > 200% &
if 10%(Net Loss Reserve) > (Total Adjusted Capital) - 2(Authorized Control Level Capital)
then seek comments from AA
calc
.1(Net Loss Reserve) = .57(Authorized Control Level Capital)
(Total Adjusted Capital) - 2(Authorized Control Level Capital) = 2.5(Authorized Control Level Capital) - 2(Authorized Control Level Capital) = .5(Authorized Control Level Capital)
.57(Authorized Control Level Capital) > .5(Authorized Control Level Capital)
so seek comments from AA