Difference between revisions of "Bright Line Indicator Test"
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| Line 14: | 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 22: | 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 |
:: '''TAC''' = 600 | :: '''TAC''' = 600 | ||
:: '''ACL''' = 280 | :: '''ACL''' = 280 | ||
| Line 28: | Line 28: | ||
: 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. | ||
Revision as of 13:48, 26 August 2021
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
- TAC = 600
- ACL = 280
- 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:
