Difference between revisions of "Bright Line Indicator Test"
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* TAC = Total Adjusted Capital ''(this is an RBC concept and refers to the balance sheet capital available to a company)'' | * TAC = Total Adjusted Capital ''(this is an RBC concept and refers to the balance sheet capital available to a company)'' | ||
− | * CAL = regulatory capital level corresponding to Company Action Level | + | * ACL = regulatory capital level corresponding to Authorized Control Level |
+ | * CAL = regulatory capital level corresponding to Company Action Level = 2 x ACL | ||
{| class='wikitable' | {| class='wikitable' | ||
Line 13: | Line 14: | ||
:: IF | :: IF | ||
::: <span style="color: red;'>'''[1]'''</span> the AA <u>does not</u> address material adverse deviation | ::: <span style="color: red;'>'''[1]'''</span> the AA <u>does not</u> address material adverse deviation | ||
− | ::: <span style="color: red;'>'''[2]'''</span> 10% x (net L & LAE) > TAC – CAL | + | ::: <span style="color: red;'>'''[2]'''</span> 10% x (net L & LAE reserves) > TAC – CAL |
:: THEN | :: THEN | ||
::: the financial analyst should pursue comments from the AA | ::: the financial analyst should pursue comments from the AA | ||
Line 21: | Line 22: | ||
: Suppose the AA did not address material adverse deviation and that: | : Suppose the AA did not address material adverse deviation and that: | ||
− | :: '''net L & LAE''' = 500 | + | :: '''net L & LAE reserves''' = 500 <span style="color: green;">← ''from Liabilities, Surplus and Other Funds, '''(Line 1) + (Line 3)'''''</span> |
− | :: '''TAC''' = 600 | + | :: '''TAC''' = 600 <span style="color: green;">← ''from Five-Year Historical Data, '''Line 28'''''</span> |
− | :: '''ACL''' = 280 | + | :: '''ACL''' = 280 <span style="color: green;">← ''from Five-Year Historical Data, '''Line 29'''''</span> |
: Then: | : Then: | ||
− | :: 10% x (net L & LAE) = 10% x 500 = '''50 > 40''' = (600 – 560) = (TAC – CAL) = (TAC – 2 x ACL) | + | :: 10% x (net L & LAE reserves) = 10% x 500 = '''50 > 40''' = (600 – 560) = (TAC – CAL) = (TAC – 2 x ACL) |
: Therefore, the financial analyst <u>should</u> pursue comments from the AA regarding material adverse deviation. | : Therefore, the financial analyst <u>should</u> pursue comments from the AA regarding material adverse deviation. |
Latest revision as of 20:08, 1 July 2023
The Bright Line Indicator Test is mentioned in COPLFR.SAO - Step 6B as part of the SAO but it requires knowledge of Odomirok.19-RBC, specifically Alice's 1st Day. That section will only take a few minutes to read so you should do that before proceeding.
Note:
- TAC = Total Adjusted Capital (this is an RBC concept and refers to the balance sheet capital available to a company)
- ACL = regulatory capital level corresponding to Authorized Control Level
- CAL = regulatory capital level corresponding to Company Action Level = 2 x ACL
Question: what is the Bright Line Indicator Test |
- IF
- [1] the AA does not address material adverse deviation
- [2] 10% x (net L & LAE reserves) > TAC – CAL
- THEN
- the financial analyst should pursue comments from the AA
- IF
Example:
- Suppose the AA did not address material adverse deviation and that:
- net L & LAE reserves = 500 ← from Liabilities, Surplus and Other Funds, (Line 1) + (Line 3)
- TAC = 600 ← from Five-Year Historical Data, Line 28
- ACL = 280 ← from Five-Year Historical Data, Line 29
- Then:
- 10% x (net L & LAE reserves) = 10% x 500 = 50 > 40 = (600 – 560) = (TAC – CAL) = (TAC – 2 x ACL)
- Therefore, the financial analyst should pursue comments from the AA regarding material adverse deviation.
Here are 2 old exam problems regarding the Bright Line Indicator Test: