Difference between revisions of "Bright Line Indicator Test"
Jump to navigation
Jump to search
Line 6: | Line 6: | ||
* CAL = regulatory capital level corresponding to Company Action Level | * CAL = regulatory capital level corresponding to Company Action Level | ||
− | + | {| class='wikitable' | |
|- | |- | ||
|| '''Question''': what is the <u>Bright Line Indicator Test</u> | || '''Question''': what is the <u>Bright Line Indicator Test</u> |
Revision as of 15:10, 10 April 2020
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)
- CAL = regulatory capital level corresponding to Company Action Level
Question: what is the Bright Line Indicator Test |
- IF
- [1] the AA does not address material adverse deviation
- [2] 10% x (net L & LAE) > 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 = 500
- TAC = 600
- ACL = 280
- Then:
- 10% x (net L & LAE) = 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: