I understand all the considerations...however, i dont understand why it's Company B. Isn't it Company A has less tolerance on Financial Flexibility, Historical Volatility and Frequency of severe events?
Yes, but your thinking it backwards. If Company A has lower tolerance, that means it is more likely to have its BCAR score lowered. The question asks for the company that is allowed to have a lower stressed score and still retain its rating. That would be the company with the higher tolerance, Company B.
Suppose we have standard scores as follows:
Company A = 180
Company B = 180
And suppose their stressed scores are:
Company A = 160
Company B = 160
Company B is stronger so it may retain its original A++ rating. But since Company B has lower tolerance, it may be downgraded to A+ based on this lower stressed score.
Note that I'm using the "old" BCAR rating system that's used in the syllabus version of BCAR.Cdn. (The current BCAR Cat Analysis reading uses the new system, which is totally different.)
I really think that the wording here is quite tricky here. Allow stressed BCAR score fall below BCAR guideline = higher tolerance to Stressed BCAR. When I first look at the question, I really have no idea what they are trying to ask..... until I read this post (.... retain its rating)
Yes, they asked the question in a strange way. When you take your exam, even if you don't quite understand the wording, remember these key points:
financial flexibility: tolerance is HIGHER if the company is willing & able to replace capital after an event
historical volatility: tolerance is LOWER if the company has as history of volatile operating performance
frequency of severe exposures: tolerance is LOWER if the company has multiple exposures to severe events in a single season
risk management: tolerance is HIGHER if the company has good/experienced risk management
If you write these points down, you will get some of the points on the question. Then explain as best you can how they relate to the given scenario. If you do that, you will get most of the points on the question, even if you don't get it completely right.
In general, if you find a question confusing, it's likely that others will find it confusing as well. If this happens, do the best you can then move on to the next question. It's better to answer all the questions on the exam versus spending too long on one difficult/confusing question and then not finishing.
That is very good tips and precious suggestions Graham.
My brain memorizing mode will be switched ON starting Wednesday!!!
I have all my study cards with me!
Comments
Yes, but your thinking it backwards. If Company A has lower tolerance, that means it is more likely to have its BCAR score lowered. The question asks for the company that is allowed to have a lower stressed score and still retain its rating. That would be the company with the higher tolerance, Company B.
Suppose we have standard scores as follows:
And suppose their stressed scores are:
Company B is stronger so it may retain its original A++ rating. But since Company B has lower tolerance, it may be downgraded to A+ based on this lower stressed score.
Note that I'm using the "old" BCAR rating system that's used in the syllabus version of BCAR.Cdn. (The current BCAR Cat Analysis reading uses the new system, which is totally different.)
Hi,
I really think that the wording here is quite tricky here. Allow stressed BCAR score fall below BCAR guideline = higher tolerance to Stressed BCAR. When I first look at the question, I really have no idea what they are trying to ask..... until I read this post (.... retain its rating)
Wilson
Yes, they asked the question in a strange way. When you take your exam, even if you don't quite understand the wording, remember these key points:
If you write these points down, you will get some of the points on the question. Then explain as best you can how they relate to the given scenario. If you do that, you will get most of the points on the question, even if you don't get it completely right.
In general, if you find a question confusing, it's likely that others will find it confusing as well. If this happens, do the best you can then move on to the next question. It's better to answer all the questions on the exam versus spending too long on one difficult/confusing question and then not finishing.
That is very good tips and precious suggestions Graham.
My brain memorizing mode will be switched ON starting Wednesday!!!
I have all my study cards with me!