OSFI.MCT
This is the most important paper on the syllabus and accounts for roughly 10% of the points on each exam. OSFI considers the MCT ratio (Minimum Capital Test ratio) to be a prime indicator of an insurer's health. This ratio compares capital available (CapAv) to capital required (CapReq). The benchmark MCT ratio is 150%. If an insurer's ratio falls below this benchmark, it may be in danger of having insufficient assets to cover its liabilities, and may come under increased regulatory scrutiny.
You must first understand how to calculate the MCT ratio. You must also have a conceptual understanding of how items in the financial statements affect the final ratio. The MCT ratio is the first of several financial health ratios listed in the paper MSA.Ratios. Forum
Contents
Pop Quiz
- For a healthy company, which is greater: CapAv (Capital Available) or CapReq (Capital Required)?
- Does OSFI think margins are a good or bad idea?
- Answers at bottom of this wiki page
BattlePlan
Based on past exams, the main things you need to know (in rough order of importance) are:
- OVERALL: how to calculate MCT capital available, capital required, and final MCT ratio
- risk margin for an earthquake catastrophe
- interest rate risk margin
- other components of the MCT capital required: insurance risk, market risk,
credit risk, operational risk - diversification credit (calculation and interpretation) and final MCT ratio
- impact of unregistered reinsurance
The exam questions at the bottom of the BattleTable (tan-coloured background) are from an old version of the MCT paper. You can ignore these questions.
Note that in the BattleTable below, you can click E in the left-hand column to open a PDF with the question and answer from the examiner's report for just that question. |
reference part (a) part (b) part (c) part (d) E (2018.Spring #13) see CIA.Accting MCT impact: CIA.Accting
- HTM bond yield decreaseE (2018.Spring #14) MCT calc: ^{4}
- interest rate risk marginE (2018.Spring #17) earthquake:
- calc reserves/componentsee OSFI.Eqk see OSFI.Eqk E (2018.Spring #18) MCT calc:
- operational riskMCT calc:
- diversification creditMCT calc:
- MCT ratioMCT ratio:
- regulator actionE (2017.Fall #18) earthquake:
- calc reserves/componentsee OSFI.Eqk E (2017.Fall #20) MCT calc:
- insurance riskMCT calc:
- market riskMCT calc:
- operational riskMCT calc:
- total capital requiredE (2017.Spring #19) earthquake:
- calc reserves/componentearthquake:
- non-modeled approachE (2017.Spring #20) define:
- interest rate risksee CIA.Duration MCT calc:
- interest rate risk marginE (2017.Spring #21) MCT calc:
- for PAS ^{1}E (2017.Spring #24) MCT calc:
- market riskimpact:
- unregistered reinsurancesee OSFI.ORSA see OSFI.AA E (2016.Fall #15) MCT calc:
- interest rate risk marginMCT calc:
- market riskE (2016.Fall #17) earthquake:
- calc reserves/componentsee OSFI.Eqk see OSFI.Eqk E (2016.Fall #18) define:
- operational riskMCT calc:
- operational riskdiversification credit:
- defineE (2016.Fall #24) see CIA.MfAD see BCAR.Cdn diversification credit:
- credit/market correlation(d) see ICA.Ch47
(e) see OSFI.ORSAE (2016.Spring #13) MCT calc: (7.75 pts!)
- interest rate risk marginE (2016.Spring #19) MCT calc:
- capital requiredE (2016.Spring #20) impact:
- unregistered reinsuranceformula:
- Off-B/S itemsdiversification credit:
- defineE (2015.Fall #16) earthquake:
- calc reserves/componentsee OSFI.Eqk see OSFI.Eqk E (2015.Fall #18) MCT concept:
- supervisery target capitalMCT calc:
- insurance risk(c) outdated
(d) operational risk(e) diversification credit
(f) MCT ratio & OSFI's reactionE (2015.Fall #19) considerations:
- capital availableE (2015.Fall #20) see CIA.DCAT see CIA.DCAT see CIA.DCAT MCT calc:
- for PAS ^{1}E (2015.Fall #21) MCT calc:
- MCT ratioE (2015.Spring #23) MCT calc:
- capital availableMCT calc:
- insurance riskMCT calc:
- operational risk(d) outdated ^{2}
(e) MCT ratioE (2014.Fall #22) outdated ^{3} E (2014.Spring #20) outdated
E (2014.Spring #26) outdated E (2012.Fall #24) outdated E (2012.Fall #27) outdated
- ^{1} PAS stands for Plausible Adverse Scenario. This term is defined in CIA.DCAT
- ^{2} This question is from the current version of the MCT paper, (Chapter 6 on Credit Risk) but that chapter was removed from the syllabus for 2017.Fall.
- ^{3} All questions from this bottom (tan-coloured) portion of the BattleTable are from on earlier version of the MCT paper. The calculations are totally different so don't even bother looking at them.
- ^{4} Strictly speaking, you cannot solve the problem as given because they did not provide the interest rate risk margin %. You had to assume it was the same as the interest rate MfAD. Sample answer 1 in the examiner's report used 1.25% as the interest rate risk margin, which you could not have known. Sample answer 2 used 0.5%, which was the interest rate MfAD. This is not correct but it was the only reasonable assumption, otherwise you could not solve the problem.
In Plain English!
Intro to this mammoth paper
If you're following the Battle Plan, you'll have already done Level 1 - Boot Camp. The last article in Boot Camp was a Suggested Study Schedule for Level 2 - Combat Training. If you haven't read that article, you should click the link and read it before continuing. |
MCT stands for Minimum Capital Test. The OSFI.MCT paper is entirely about calculating & understanding the MCT ratio. The mechanics of the calculation are covered exhaustively in the practice templates within BattleHack #4 (Calculations) in the main BattleActs site. (There are direct links to this through the mini BattleQuizzes - see below.) But first, take a look at this extremely simple example (amounts in 000's). Given:
- CapAv (Capital Available) = 62,400
- CapReq (Capital Required) = 50,355
(Assume that the diversification credit has already been taken. This credit is discussed later in this article.)
If minCapReq stands for minimum Capital Required then the formula for the MCT ratio is:
MCT = CapAv / minCapReq
where
minCapReq = CapReq / 1.5
So MCT = 62,400 / (50,355/1.5) = 185.9% This is comfortably above the supervisery target of 150%, so this insurer is probably doing ok. (In practice, we would need much more info than just a single year's MCT ratio to be able to draw meaningful conclusions about an insurer's overall health. The MSA ratios are a great supplement. See the article MSA.Ratios)
Side note
Did you wonder why we used minCapReq in the denominator instead of just CapReq? (CapReq is also called target CapReq)
- Explanation: Target CapReq corresponds to a CTE (Conditional Tail Expectation) of 99%, so minCapReq is a less strict requirement. (But then we set the statutory requirement at 150% instead of 100%, so I suppose it all works out the same in the end.)
- Note: CTE(Q%) is defined in CIA.MfAD, mini BattleQuiz #3, as the weighted average of the highest (100-Q)% results of a stochastic simulation. This is sometimes approximated by VaR (Value-at-Risk) at 99.5% when a CTE approach isn't practical.
Typical conceptual problem
Let's take the previous example, but make a slight change to the insurer's B/S. (B/S stands for Balance Sheet, and yes, I know, it stands for something else too. Grow up!!!):
- Suppose there is a shift in B/S liabilities from auto physical damage to auto liability.
- Question: Does this shift cause the MCT ratio to go up or down? Why?
- Answer: Down, because auto liability has a longer tail than physical damage. In other words, it's riskier, and riskier B/S items require more capital support. That pushes CapReq up, which pulls MCT down.
Start Calculating!
If you've done Boot Camp, then you know how the following link works. But just as a reminder: The link will take you to the BattleCards, which is our word for flash cards. In this selection, there are some fact-based BattleCards, which are self-scored, and one calculation BattleCard. For the calculation BattleCard, click on the button with the pencil and the digits 123 to go to the actual problem. When you answer a BattleCard correctly, your BRQ (Battle Readiness Quotient) will rise. This is shown in the navigation bar next to your name.
This first mini BattleQuiz is actually the same as the quiz from the Boot Camp sequence. (Let's see how well do you remember it!)
Note that in the mini BattleQuiz below, some of the BattleCards are actually old exam questions. Click E in the left-hand column to open a PDF with the full exam question and answer. |
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Study Strategy
The calculation problem from the last section was straightforward. The purpose was to give you a feel for the elements of the MCT calculation. All the separate components were provided - you just had to know how to put them together. Of course, the problems on the exam won't be as easy as that! Usually, you have to calculate these components but you'd be given more detailed data about the company. Here are a few suggestions for studying this paper:
- Get an overview: Peruse the table of contents, and read the first paragraph of each of the 8 chapters (excluding chapter 3).
- Practice the basic calculation: BattleActs has numerous practice templates that cover basic components of the MCT calculation. Links to these are provided later in this article, but you can also access them using BattleHack #4 (Calculations) from the BattlePlan page in the main site. Once there, click the button at the top of the page Retrieve BattleActs practice templates only
- Previous exam questions: Once you're comfortable with the basic versions of the calculations, try solving old MCT exam problems. Again, links are provided later in this article, but you can also access them using BattleHack #4 (Calculations) from the BattlePlan page in the main site. But instead of clicking on the button for the practice templates, use the Show CPs button for the appropriate section. (CP stands for Calculation Problem)
- Daily practice: At first, you should practice these calculations daily. Once you know them, you should return to them every week or two while you're studying other parts of the syllabus. Then when you get close to exam day, go back to daily practice. This might seem like overkill, but MCT consistently accounts for almost 10% of the exam, and it's usuallly a hard question. That's why the OSFI.MCT paper comes first in your study plan. It gives you 3 months to battle it into submission and slay it! There is a LOT to learn, but it will come together if you persevere.
- Intuition: As you get better and better at the calculations, you'll develop intuition about how the components relate to each other. Remember the simple example above where I asked what would happen to the MCT ratio if the company shifted from short-tail to long-tail lines? You don't have to do the actual calculation to know that the MCT ratio would go down. That's a so-called Bloom's taxonomy type of question because you have to have a higher level of understanding to be able to see the answer at a glance.
Source Readings: BattleActs covers all material from past exams. It also covers significant material that has not appeared on past exams but that I've judged to be important. Still, it's a good idea to spend at least little time reviewing the source readings. You may have a different opinion on what's important and what you can skip. You cannot read all 2,500 pages in depth, but BattleActs give you the necessary background knowledge so that the time you do spend on the source readings will be much more efficient. |
Layout of the paper
You can see from the table of contents in the MCT source paper that there are 8 chapters.
- Chapter 1: Just general info.
- Chapter 3: NOT on syllabus.
The critical info is in chapters 2 & 5-8.
In my own mind, here's how I think about the MCT components on a very high level:
- (Chapter 2) CapAv: You need the B/S (Balance Sheet) for this. A good proxy for CapAv is just the B/S equity (equity = assets - liabilities).
- (Chapter 4-7) CapReq : The formula is Sum(IMCO) - DC, where IMCO are the 4 broad areas of risk (Memory Trick: In My Crummy Opinion), and DC = Diversification Credit:
- Ch 4: Insurance Risk
- Ch 5: Market Risk
- Ch 6: Credit Risk (most of this chapter has been removed from the syllabus)
- Ch 7: Operational Risk
- The diversification credit (Chapter 8) is used to reduce CapReq. It represents diversification of risk, which is good. If risk is diversified, it's less likely that all risk categories will suffer a big loss all at the same time. (Hint: The purpose of the DC (Diversification Credit) has shown up a few times on recent exams. Memorize it!)
Chapter 2: CapAv
Chapter 2 defines CapAv, which is the numerator in the MCT ratio. Aside from being able to calculate CapAv using B/S items, there are some qualitative considerations in defining CapAv for MCT purposes: (2015.Fall #19). Memory trick: APAS
- Availability: Is the capital element fully paid & available to absorb losses?
- Permanence: Until when is the capital element available?
- Absence: Ask whether a capital element has an absence of encumbrances & mandatory servicing costs
- Subordination: Is the capital element subordinated to the rights of policyholders & creditors in an insolvency or winding-up?
Please note changes to the practice template for deductions for unregistered reinsurance from capital available. Clarification regarding the LOC limit (Letters of Credit) has been inserted.
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Chapter 4: Insurance Risk
Recall the definition of insurance risk:
- risk of loss FROM the potential for claims (from policyholders & beneficiaries)
Broadly speaking, insurance risk deals with uncertainties surrounding the amount and timing of net cash flows for items such as premiums, commissions, claims & LAE. This is slightly more general than the above definition. The idea of timing is crucial – if you're owed $100,000, but the payment is 20 years late, you might as well have just written it off as bad debt. Timing is everything!!!
There are then 4 sub-categories of insurance risk: (Past exam problems have covered all these sub-categories, but earthquake seems to come up more than the others.)
claims liabilities premium liabilities unregistered reinsurers catastrophes (earthquake, nuclear,...)
This is a long section, so you should get started immediately (if not sooner!) on the mini BattleQuiz. It's a mixture of fact-based BattleCards, and BattleCards for practice templates, and will probably take you several days of intensive study.
Important: If you're given claims or premium data in an MCT problem, make sure it's net of reinsurance, salv/sub, SIRs (Self-Insured Retentions), and also that it does not include PfADs (Provision for Adverse Deviation).
Important: The examiner's report answer to (2015.Fall #18b) has an error. When they calculate the capital required for unregistered reinsurance, the formula they use is incorrect. They got the correct answer (by luck), but if you apply that same formula to other problems, for example (2017.Fall #20a), you will get the wrong answer. (Thanks to user nyzf0101 for noticing this!)
Before you read the chapter on insurance risk in the MCT paper, here is something to keep in mind:
- (4.3.3) is the subsection on unregistered reinsurers.
- (4.3.3.3) tells you how to calculate the margin required for the unregistered reinsurance component of insurance risk. The formula is given in the practice template in the mini BattleQuiz (Note that no mention has yet been made regarding the LOC or Letter of Credit limit.)
- (4.3.3.4) is a detailed discussion of collateral. It is here that first mention is made of the limit on the use of LOCs. Specifically, the limit on the use of letters of credit to obtain capital credit for unregistered reinsurance is
30% of “Unearned premiums ceded to assuming insurer” and “Outstanding losses recoverable from assuming insurer".
- But does this limit apply in every calculation that involves LOCs? Namely:
- deduction to capital available due to unregistered reinsurance (Chapter 2)
- margin requirement for unregistered reinsurance component of insurance risk (Chapter 4)
- If the 30% limit does apply everywhere, why is it not mentioned until after those topics have already been dealt with?
- Another formula involving LOC relates to:
- the reduction in capital required for unregistered reinsurance collateral within credit risk (Chapter 6)
- But the example on how to do this calculation appears in (4.3.3.4), not in Chapter 6. But despite all this, I think the following is a reasonable assumption:
A reasonable assumption: This 30% limit on LOCs applies to all formulas where LOC appears.
So, you should always check whether the limit is breached. (Usually it isn't) Also, as noted further down in this article, most of chapter 6 has been removed from the syllabus, so the credit risk component is no longer a significant issue.
Note that for one of the old exam questions in the mini BattleQuiz, (2017.Fall #18a), you need to know the components of the financial resources of earthquakes from section 4.5.1.2. This is discussed in more detail in the wiki article OSFI.Eqk, so you may want to switch briefly to the relevant section (Other Top Earthquake Questions) in that article before attempting the aforementioned exam problem. They also added something nasty into that problem: You had to know to do linear interpolation between PML500 and PML250 to find PML420 (= 170/250 * PML500 + 80/250 * PML250). |
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Chapter 5: Market Risk
Recall the definition of market risk:
- risk of loss FROM changes in prices in various markets
There are then 4 sub-categories of market risk. If you want to remember them, ask Mr. IFER. He's a friend of Alice the Actuary. (Past exam problems tend to focus on interest rate risk.)
Interest rate risk Foreign exchange risk Equity risk Real estate risk
Mr. stands for Market risk, and IFER represents the first letter in each subcategory of risk.
P.S. I know these memory tricks are ridiculously stupid!! But that's the whole point - the stupider the better!! Nobody remembers the boring s**t!!
A few comments on the mini BattleQuiz: |
- Problem (2018.Spring #14) was the 3^{rd} time in recent history where you had to do the whole calculation for interest rate risk margin. It consists of several steps: (You won't understand all of it until you're further along in the syllabus but it's still good to look at it now.)
- APV(claims liabilities): already covered in Boot Camp here which is part of CIA.MfAD
- duration of claims liabilities: see CIA.Duration
- APV(premium liabilities): partly covered in Boot Camp here but more fully covered here which is part of CIA.PrLiabs
- duration of premium liabilities: see here or CIA.Duration
- putting the previous steps together to get the final answer for interest rate risk margin (this final step is pretty easy once you have everything else)
- Important: As was stated in the BattleTable, you cannot solve the problem as given because the question does not provide the interest rate shock. The first sample solution in the examiner's report assumes it's 1.25%, even though it isn't provided. The second sample solution assumes the interest rate shock equals the MfAD for the investment rate of return, which is 0.5%. This is not a valid assumption but it was the only thing you could do if you wanted to solve the problem. That's why the sample solutions have different answers. This is very confusing for someone studying and I think it's really bad that they didn't bother to explain their error.
- Problem (2017.Spring #20b), on the difference between modified and effective duration, is from Sections (5.1.1.5) & (5.1.1.6) and has been removed from the syllabus. (So this is not included in the mini BattleQuiz.)
- There is a practice template for calculating capital required for interest rate risk. It's quite easy, and is very similar to (2017.Spring #20c)
- Now, (2016.Fall #15a) is a much, MUCH harder problem on the interest rate risk. It's harder because you have to first calculate the both the APV (Actuarial Present Value) of the claim and premium liabilities, and also the duration of these liabilities. That's why it's worth 5.25 points. That means you have to know the calculations from the premium liabilities paper, CIA.PrLiabs Additionally, the calculation for the duration of premium liabilities is outdated. It was based on an earlier version of the CIA's premium liabilities paper, so don't waste time studying that part of the solution in the examiner's report.
- Even crazier is (2016.Spring #13), also with the now outdated method for calculating the duration of the premium liabilities. See CIA.PrLiabs for the updated method. This is similar to the above problem from (2016.Fall), but this was the first time an interest rate risk problem appeared on an exam, and it was worth 7.75 points!! One question, with no sub-parts!! Since this was a first-time question, I simply cannot imagine anyone solving it completely. (Maybe that tall, skinny dude from the Big Bang Theory...) But having said that, you can get a clue how to at least start by looking at the given information.
- You're given a payment pattern, the net unpaid, and the MfADs (Margin for Adverse Deviation)- so they're setting you up to calculate the APV of the claims liabilities. That's probably 1.5 pts right there. The key is not to panic.
- After you've done the APV for claims, it might then have dawned on you to calculate the APV of the premium liabilties. But I think they were again unnecessarily nasty because they don't give you the unearned premium. They give you the gross written premium and the exposure pattern, and make you calculate the unearned premium. It was just way too effin' much to do. I think that's why the interest rate risk problems got progressively easier on subsequent exams.
- And the calculation on the duration of the premium liabilities is out of date, so again, don't waste your time on that part of the examiner's report.
- So, before you get started, just keep in mind the 2 basic formulas for capital required for interest rate risk:
CapReq(IntRt) = absolute value of [ change(value of assets) – change(APV(liabilities)) ] change(assets or liabilities) = (Fair Value or APV) x change(interest rate) x (modified duration)
- Important: If you're given claims or premium liabilities in an MCT problem about interest rate risk, make sure it includes PfADs (Provision for Adverse Deviation). (This is the opposite of when you're calculating insurance risk. Note that from the previous section, the calculations involving claims & premium liabilities EXCLUDE PfADs.)
See section 5.1.2 for the 6-step process for calculating CapReq for interest rate risk. But it basically boils down to the formulas above. Have fun! (groan...)
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Chapter 6: Credit Risk
Recall the definition of credit risk:
- risk of loss FROM counter-party's potential (inability OR unwillingness) to fully meet contractual obligations due the insurer.
There are then 3 sub-categories of counter-party risk: (Past exam problems tend to focus on unregistered reinsurers, but most of this was removed from the syllabus for Fall.2017.)
counter-party default risk for B/S items counter-party default risk for off-B/S items counter-party default risk for collateral & guarantees from unregistered reinsurers
The syllabus regarding this chapter in the MCT reading is confusing. Calculation items that were previously tested have been removed from the syllabus without explanation:
- (6.1) Capital Requirements for B/S Assets: The short intro remains on the syllabus.
- (6.1.1) Use of ratings: removed
- (6.1.2) Credit Risk Factors: remains
- (6.2) Capital Requirements for Off-B/S Exposures: The short intro remains on the syllabus
- (6.2.1) Credit Equivalent Amount: removed
- (6.2.2) Credit Conversion Factors: removed
- (6.2.3) Risk Factors: removed
- (6.3) Capital Treatment of Collateral & Guarantees: removed
That doesn't leave a whole lot to test.
- It's odd that (6.1.2) on credit risk factors remains on the syllabus when most of that section is tables of risk factors, which the syllabus also specifically excludes.
- The only thing I see that might be asked is the 3rd bullet point under list-item 1, the formula for effective maturity. (This is p63 in the 2016 version of this paper.)
- But the effective maturity is also discussed in CIA.Duration, and in much greater detail.
- Furthermore, CIA.Duration states that either modified or effective duration may be used in calculating asset/liability duration for the interest rate risk margin. So it feels like concept of effective duration is pretty much a non-issue.
- The only thing you probably need to know is that modified and effective duration give similar answers PROVIDED interest rate changes do not affect future cash flows. (So, obviously, if interest rate changes do affect future cash flows, then effective duration might be a better choice, at least for calculating in the interest rate risk margin.)
- To summarize then, it appears that detailed knowledge regarding the MCT calculation of credit risk has essentially been removed from the syllabus. As to why bits and pieces of Chapter 6 remain on the syllabus, I really have no idea.
For now, I've kept this material in the mini BattleQuiz, but I've adjusted the scoring weights to reflect these syllabus changes. (You should know the 3 main components of credit risk given in the table above.)
- Note that in 2017.Fall #22c, you were asked to identify an example of an off-B/S risk, (structured settlement, NOD[Non-Owned Deposits], LOC, derivative). You then had to identify a ripple effect and management action, so even that was mainly a topic from CIA.DCAT.
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Chapter 7: Operational Risk
Recall the definition of operational risk:
- risk of loss FROM inadequate or failed (internal processes, people, systems) OR FROM (external events)
There are then 3 sub-categories or components of operational risk. (You then multiply by appropriate risk factor to obtain capital required.)
sum(IMC) (sum of Insurance, Market, Credit risk) premium volume & growth intra-group pooling
There was a question in the forum regarding the formula for the premium growth charge. (This is the 5th line of the "A" components in the practice template. See post here.)
There was another question regarding whether assumed premium from intra-group pooling should be included when determining whether there is a growth charge. See here.
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Chapter 8: Diversification Credit
Recall the definition of the diversification credit:
- a reduction to capital required RECOGNIZING that not all risk categories are likely to suffer maximum loss simultaneously
That and the formula for the diversification credit are all you need to know. (The formula is provided in the practice template in the mini BattleQuiz)
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Summary
Chapter 2 defines capital available. Do you remember APAS, the qualitative considerations in defining capital available. (If not, review the section on Chapter 2 above.)
Chapters 4-8 define capital required, which is the denominator in the MCT ratio. What you need to know from chapters 4-7:
- CapReq has 4 components. Use the mnemonic IMCO. (In My Crummy Opinion)
risk sub-risk 1 sub-risk 2 sub-risk 3 sub-risk 4 hint I Insurance Risk claims liabilities premium liabilities unregistered reinsurance catastrophes (earthquake, nuclear,...) c-puc M Market Risk Interest rate risk Foreign exchange risk Equity risk Real estate risk Mr. IFER C Credit Risk default on B/S items default on off-B/S items default on collateral form unreg'd re ---- create your own O Operational Risk Sum(IMC) premium volume & growth intra-group pooling ---- create your own
You then need to know how to calculate CapReq for each of these components. It's a mechanical process but it takes a lot of practice because it's so detailed. All of this is covered in the practice templates for calculation problems, and in the examiner's reports.
What you need to know from chapter 8:
- purpose of, and formula for, the diversification credit (see previous section)
Here are PDFs of all the pieces of the MCT puzzle put together... |
MCT Practice Problem A (Full Problem)
MCT Practice Problem B (Full Problem)
And mini BattleQuiz #8 has references to the MCT problems from (2015.Fall). They were worth a total of 7.25 points or about 10% of the whole exam. |
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BattleCodes
- This is a long & difficult paper, but the cheat sheet is short:
- Be able to calculate the MCT ratio from start to finish. This is just a long but straightforward math problem.
- Acquire a conceptual understanding of how the components interact with each other.
- A good type of conceptual question is when you're not given any numbers, but simply told that certain input parameters either go up or down. You then have to determine the effect on the MCT ratio, up or down.
- This paper seems insurmountable when you first look at it, but if you spend just a LITTLE time on it every day, it will make sense before you know it!
- You can expect roughly 6-7 pts from this topic on the exam.
- GOOD LUCK!!
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POP QUIZ ANSWERS
- CapAv should be greater than CapReq for a healthy company. (Duh)
- OSFI thinks margins are good: CapAv should be much greater than CapReq to account for uncertainty. (Who knows - we might be on a collision course with an asteroid. Yikes.)
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