Questions regarding Exam 6C

olidude3121olidude3121
in General
  1. For the three reasons the insurance industry was singled out for solvency regulations: what do they mean by short term price competition? Does that imply that volatility for premiums between insurers is bad?
  2. For the Chief Actuary question I had, can you give me an example of the differentiation of the work between the AA and Chief Actuary? Does the chief actuary play a part in valuation or the FCT process?
  3. What does the Smart Regulation part of the action plan mean? Are they saying that having an arms-length regulator is important but not one that limits competition? Also would investment in health care be considered an item in the "Action Plan"?
  4. Is question #4 of Fall 2019 outdated? It revolves around BC auto insurance.
  5. What is the difference between a judicial policy directive and rule of law? (Ter Neuzen v Korn - if you have a memorization trick for this one it be greatly appreciated !)
  6. For the PACICC Compensation fund, why would PACICC be borrowing money from this fund? Isn't the point of the fund to cover PH whose insurers went bankrupt? Or does the borrowing imply that the fund is self-sustainable -> ie there needs to be a min amount of money in the fund?
  7. What does "involuntary market exit costs" mean? Also, aside from bankruptcy what is another form of involuntary market exit cost? This is from the PACICC reading.
  8. Can you explain what "Asset for Future Income Taxes" is? Does it refer to prepaid-taxes?

Thanks a lot!

Comments

  • grahamgraham

    Hi @olidude3121

    I'm starting with the 2 questions that I think are the most important:

    Question 4:

    Question 8:

    • The answer to your questions is available in the wiki article for CIA.Taxes here:
    • Link: https://battleactsmain.ca/wiki6c/CIA.Taxes#Intro
    • (You are correct that this asset represents pre-paid taxes.)
    • Calculation questions on the "Asset for Future Income Taxes" is a very commonly asked question. You can get a listing of all the commonly asked exam questions from past exams using the link below:
    • Link: https://battleactsmain.ca/BB_byTopQ.php
    • In general, you can use the link to BattleCards - Top Questions on the Main Page in the Custom Battles box to access a feature showing the most commonly asked questions from prior available exams.

    I will answer your other questions in order over the next few days.

  • grahamgraham
    edited October 2021

    Question 1:

    • Short-term price competition means lowering prices temporarily to undercut smaller competitors and drive them from the market. Once competitors are gone, the remaining insurers can raise rates with less fear of losing business. This is bad for the consumer because it creates monopolies.
    • Also, as you said, price volatility is not good for consumers. Consumers prefer predictability.

    Question 2:

    • An example of a function of a chief actuary is to oversee employees participating in a reserve analysis.
    • The function of an AA is to review the work product coming from the actuarial department that the chief actuary oversees.
    • The FCT process would definitely involve the chief actuary.
  • grahamgraham
    edited October 2021

    Question 3:

    Question 5:

    • I'm not a lawyer but the way I interpreted that is as follows:

    • a judicial policy directive is something that has been deemed good policy and should generally be followed in making a decision, but it doesn't have to be followed

    • rule of law is something that must be followed

    That might not be how a lawyer would explain it but I think that's all you would need to understand for the exam.

  • grahamgraham

    Question 6:

    • The compensation fund is funded by annual levies on solvent insurers and is used by PACICC to reimburse policyholders if an insurer goes bankrupt.
    • There is debate on how much money needs to be in the compensation fund but that isn't part of the syllabus.

    Question 7:

    • An involuntary market exit occurs when an insurance regulator loses confidence that a company is viable or believes that it is behaving in an unacceptable manner. To protect policyholders’ rights, the regulator has the authority to force an insurer out of the market.
    • The costs would be things like paying claims to policyholders of the insurer that was forced out of the market. There are also costs of administering the liquidation as well as intangible costs relating to reduced consumer confidence.
    • Note that these details are not discussed in the source text. The source text is high level survey paper on PACICC and how it works. If you can do the old exam problems then you will be prepared for anything that comes up.
  • olidude3121olidude3121

    Thanks for the clarification :)

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