Bright Line Indicator Test

The Bright Line Indicator Test is discussed in COPLFR.SAO as part of the SAO but it requires knowledge 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.

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

financial analyst should pursue comments from the AA

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:

E (2019.Spring #19)

E (2016.Fall #20)