19 Fall #23

lkto22

Hi for c) can bright-line test be used here? If not, what are the possible reasons? Thank you.

graham

I don't think this question gives you enough information to use the Bright Line Indicator Test. You would need TAC (Total Adjusted Capital) and CAL (regulatory capital level corresponding to Company Action Level).

In general, if an exam question asks you to test RMAD, you should do it the "normal" way of selecting a materiality level and proceeding as shown in the examiner's report. If the exam question wanted you to use the Bright Line Indicator Test, they would either tell you explicitly to do so or at least provide the necessary RBC quantities as in the exam problems shown below. The Bright Line Indicator Test is not usually performed as a standalone test:

• https://battleacts6us.ca/pdf/Exam_(2019_1-Spring)/(2019_1-Spring)_(19)_v2.pdf
• https://battleacts6us.ca/pdf/Exam_(2016_2-Fall)/(2016_2-Fall)_(20).pdf

The Bright Line Indicator Test could be viewed as a quick test for RMAD, but note that COPLFR states that the test is used when the appointed actuary doesn't comment on RMAD (or doesn't believe there is RMAD). Then if condition [2] also fails:

• [2] 10% x (net L & LAE reserves) > TAC – CAL

the financial analysts reviewing the AA's report should pursue further explanation from the AA.