When I wrote the wiki article, I thought about trying to create a practice problem but they provide so little information that I couldn't think of how to create a good one. If you look at the natural catastrophe stress test procedure, here is the information you would need to get started:
surplus
reinsurance recoverables
reserves
net PML
ceded PML
Then for the stress test you would calculate new values as follows:
new surplus = surplus - (net PML)
new reinsurance recoverables = reinsurance recoverables + 40% x (ceded PML)
new reserves = reserves + 40% x (net PML)
You could use these new values to recalculate available capital as in the first web-based practice template in the main BCAR reading. But then you're stuck. The next step is to recalculate required capital using these new values but the main BCAR reading only shows you how to do B5 and B6.
On past exams, they have always just asked you to list the steps without doing any calculations. That doesn't mean they won't ask you to do calculations on future exams but like I said, I couldn't see how to create a good practice problem. I do think it's very unlikely they would ask a calculation on this.
If you do want to try to prepare for this however, I would learn the formulas I listed above for the "new" values for surplus, reinsurance, and reserves and be able to use those new values as inputs to the calculation of available capital as explained in the wiki. Maybe they would then provide net required capital so all you would have to do is apply the basic formula using your new calculated value for AC:
BCAR= (AC – NRC) / AC x 100
I hope that helps. I will link to this thread from the wiki in case anyone else was thinking about this too. Sometimes they do ask unexpected questions!
Thank you @graham ! That helped.
I agree that it's hard to know how they ask to calculate even without any example in the paper. Hope if they ask such calculation question, it will be easy to do by knowing correctly the steps.
Comments
When I wrote the wiki article, I thought about trying to create a practice problem but they provide so little information that I couldn't think of how to create a good one. If you look at the natural catastrophe stress test procedure, here is the information you would need to get started:
Then for the stress test you would calculate new values as follows:
You could use these new values to recalculate available capital as in the first web-based practice template in the main BCAR reading. But then you're stuck. The next step is to recalculate required capital using these new values but the main BCAR reading only shows you how to do B5 and B6.
On past exams, they have always just asked you to list the steps without doing any calculations. That doesn't mean they won't ask you to do calculations on future exams but like I said, I couldn't see how to create a good practice problem. I do think it's very unlikely they would ask a calculation on this.
If you do want to try to prepare for this however, I would learn the formulas I listed above for the "new" values for surplus, reinsurance, and reserves and be able to use those new values as inputs to the calculation of available capital as explained in the wiki. Maybe they would then provide net required capital so all you would have to do is apply the basic formula using your new calculated value for AC:
I hope that helps. I will link to this thread from the wiki in case anyone else was thinking about this too. Sometimes they do ask unexpected questions!
Thank you @graham ! That helped.
I agree that it's hard to know how they ask to calculate even without any example in the paper. Hope if they ask such calculation question, it will be easy to do by knowing correctly the steps.