Practice: 4 FCT Financial Condition problems
Hi,
Why is the 3rd example in satisfactory condition? The going-concern and solvency scenarios all failed, i.e. step 1b, 1c and 1d.
https://www.battleactsmain.ca/pdf/CIA.FCT-1_(050)_financial_condition_practice_v02.pdf
page 6
Comments
It's a trick question - The length of the forecast period is 3 years. The insurer only fails the going concern and solvency scenarios in years 4 and after, which means they meet the requirements during the forecast period
Got it, thanks!
I included that example because that's exactly the kind of trick I could see showing up on the exam! (That question has been asked by students multiple times so you are not alone!)
For practice problem 1, the mct ratio > internal target but here asses are also lower then liabilities for 3 out of the 4 forecast periods... is it still a pass if the base scenario wouldn't pass if it was the solvency scenario?
I am not sure which question you are referring to. Question 1 in the pdf above has Assets > liabilities for the whole forecast period
how do we interpret the solvency scenarios - if in 2022 it's expected to have X$ in assets and Y$ in liab, and in 2023 it's expected to have X_2$ in assets and Y_2$ in liab, where do these numbers come from? is it assuming the solvency scenario happens in 2021 or are we expecting it in 2022? is it being spread out over a number of years? where is the solvency scenario considered?
These numbers would come from actually running the FCT. The solvency scenario usually occurs during the projection period, so sometime after 2022. It could be spread out over multiple years, for example an inflation or recession scenario. The solvency scenario is considered in the final FCT report -> You need to pass the base, going-concern and solvency scenario to pass the FCT