2017 Spring Q23e: BCAR.Cat
2017 Spring Q23e: What does it mean to have A.M. Best allow its stress-tested BCAR score to fall below the BCAR guidelines?
From the wiki there is this explanation:
Important: an insurer's final rating may stay the same or be lowered based on it's stressed BCAR score (this is where the concept of tolerance arises)
When the final ratings are lowered does it mean that it's getting worse? (ie from very strong lowered to strong)
From the answer company B have a higher tolerance than A -> then does higher tolerance means that the score can be lowered under stressed BCAR score?
NOTE: Btw I cannot post this question under the BCAR.Cat forum directly, not sure why.
Comments
What the exam question is trying to get at is the fact that a stressed score that falls below BCAR guidelines does not necessarily imply that the company is facing an unacceptable amount of risk - Reasons are explained in the solution.
Yup lower ratings means a more hazardous capital position.
Yes it can but it depends on a case-by-case basis as alluded to in the solutions
Strange - I cannot move it too @graham
Don't know what went wrong. I have moved it to BCAR.Cat.
I am still having trouble interpreting this question
Given the following information, explain which company is more likely to have A.M.
Best allow its stress-tested BCAR score to fall below the BCAR guidelines.
I understand why company B is better and more tolerant.
But I am having difficulty understanding why company B is the answer. I think this is probably due to my misinterpretation of the question.
B has greater financial flexibility in raising capital, so even if their stressed BCAR score falls below 0 at a given VaR level, which would normally preclude them from maintaining their current rating and would lead to a downgrade, BCAR may subjectively choose to keep them as is because of this financial flexibility