Assessing financial condition

felixc5

On the previous DCAT questions, the conditions to determine insurer financial conditions were
1. base scenario >= 150% for forecast period
2. All scenarios (base + plausible adverse) have assets > liabilities over forecast period

for FCT, the new conditions are
1. base scenario >= internal target over forecast period
2. going concern scenario >= regulatory minimum (100%) over forecast period
3. solvency scenarios have assets > liabilities over forecast period

Does that mean point 1 and 2 in FCT no longer require assets > liabilities? or would point 2 under DCAT still be correct, effectively replacing point 3 of FCT?

Staff-T1

So a solvency scenario is the worst possible scenario under the FCT guidelines. If assets must be > liabilities for point 3, it should definitely hold for less severe scenarios too (i.e. points 1 and 2)

felixc5

thanks and also reviewing the wiki, i noticed that under the scenario thresholds for base and going concern scenario it is described as

insurer meets its internal target capital ratio(s) as determined by the ORSA

but the wiki uses > 180% as the example rather than >= 180%

it's a minor distinction but could make a difference as a "trick" question.

graham

I should probably have written ">=180%" but I wouldn't worry about it. It's extremely unlikely the ratio in a given problem would work out to exactly 180% so the distinction between "greater than" and "greater than or equal to" wouldn't come into play.