2018 Spring 13 Prem Liab cap for insurance risk in MCT CapReq

yonsjooyonsjoo
in OSFI.MCT

Hi,

I'm in my last few days of prep for the exam, and came across a concept that contradicts each other.. Hope for a quick clarification.

When you take a look at examiner's answer for 2018 Spring #13 b. ii.
Examiner states following for Yield drop
"Margin for premium liabilities: It depends on whether the cap is reached (30% of net WP
in last 12 m). If the cap is already reached, then no change. Otherwise, there would be an
increase in this margin as well."

However, from battleacts state for premium liab portion calculation in MCT CapReq
formula is set for MAX (NWP * 30% , PremLiab) * Margin
which means 30% Cap is actually a "floor", a lower bound for PremLiab in this calculation

If I apply same logic to the above question, examiner's answer doesn't make sense. Unless they are stating that, when "Cap is already reached" as in with the new yield PremLiab still does not exceed 30% Cap..

Thanks in advance for your answer!

Comments

  • grahamgraham
    edited April 2022

    This was a typo. It should be min not MAX. Thanks for pointing this out.

    No WAIT! See below.

  • AnLaPeAnLaPe

    @graham unless I'm misunderstanding the source, it seems to me like you had it right initially and it's the solution that is in error. They seem to have gotten confused with the cap for operational risk at 30% of CR0

  • grahamgraham
    Oh gosh. I might need a nap. I’ll look at again.
  • AnLaPeAnLaPe
    edited April 2022

    They might have interpreted the "cap" as the "floor" for the margin, but that's pretty poorly worded if that's the case. Interestingly, they double-down on calling it a cap in the examiner's comments...

    In any case, since this question is closely tied to CIA.Accting, it should probably be marked as outdated, right? Part b seem doable from MCT and general knowledge alone, but is probably unlikely to reappear in this exact form.

  • grahamgraham
    edited April 2022

    Ok, you are correct that I was right initially. Thx!

    And yes, both parts are outdated anyway. It's marked as outdated if you bring up the BattleCards by exam, but I forgot to mark it as outdated in the BattleTable for the MCT reading. Thx again!

  • yonsjooyonsjoo

    Please update the outdated with the same coloring scheme as other materials in MCT too ! And any other materials, as myself and I'm sure probably few other people are comfortable completing the review by re-visiting each sections.

    I found another example - 2018 Fall #15 that use 'floor' for prem liab, and was banging my head against the wall in confusion.. ha

    Thanks for quick responses Battleacts team!

  • grahamgraham
    edited April 2022

    I try to update the BattleTables with orange colour-coding when problems are outdated. but sometimes I miss some because there are so many changes to the syllabus each year. If you're unsure, you can display past exams using this feature:

    That should provide a more definitive labelling of outdated problems.

    Also, please let me if you find any outdated problems that are not marked in the BattleTable.

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