Question

Assume Storrs Insurance Company (a Property Casualty company) has...

Assume Storrs Insurance Company (a Property Casualty company) has the following data for 12/31/2016:

• Total Assets = $120M
• Fixed Income assets = $90M
• Equity assets = $30M
• Total liabilities= $102M
• Loss Reserves = $72M
• Unearned premium reserves = $30M
• Premiums for calendar year 2016 = $25M

Assume that for RBC purposes:

• R0 = 0
• R1 factor for its blend of fixed income assets = 4.5%
• R2 factor for equity assets=20%
• R3=0
• R4 factor for underwriting risk, loss reserves =15%, Unearned Premium reserves = 10%
• R5 factor for underwriting risk, premiums=30%

1. What is the Authorized Control Level (ACL) for Storrs for year-end 2016?
2. What is Total Capital at 12/31/16?
3. What is the RBC Ratio?
4. What do RBC rules then require of the company?Of the state insurance commissioner?

Assume that a second company Mansfield Insurance Company, is absolutely identical in all respects, except that it has a more conservative actuary, who has decided to set the loss reserves at $54M rather than $45M.

1. What is the ACL for Mansfield?
2. What is the RBC ratio?
3. What do RBC rules then require of Mansfield?Of the state insurance commissioner?
4. Which company is financially stronger?What does this say about using the RBC system to judge relative financial strength of insurers?