Difference between revisions of "Bright Line Indicator Test"
Jump to navigation
Jump to search
(Created page with "The '''Bright Line Indicator Test''' is discussed in ''COPLFR.SAO'' as part of the SAO but it requires knowledge from the RBC chapter in Odomirok, ''Odomirok.19-RBC#Alic...") |
|||
| (22 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
| − | The '''Bright Line Indicator Test''' is | + | The '''Bright Line Indicator Test''' is mentioned in ''[[COPLFR.SAO#Step_6-B:_RMAD_.28Relevant_Comments.29 | COPLFR.SAO - Step 6B]]'' as part of the SAO but it requires knowledge of ''[[Odomirok.19-RBC]]'', specifically ''[[Odomirok.19-RBC#Alice.27s_1st_Day_.28Intro_to_RBC.29 | Alice's 1st Day]]''. That section will only take a few minutes to read so you should do that before proceeding. |
| − | :{| class='wikitable' | + | '''Note''': |
| + | |||
| + | * TAC = Total Adjusted Capital ''(this is an RBC concept and refers to the balance sheet capital available to a company)'' | ||
| + | * ACL = regulatory capital level corresponding to Authorized Control Level | ||
| + | * CAL = regulatory capital level corresponding to Company Action Level = 2 x ACL | ||
| + | |||
| + | {| class='wikitable' | ||
|- | |- | ||
| − | || '''Question''': what is the | + | || '''Question''': what is the <u>Bright Line Indicator Test</u> |
|} | |} | ||
| − | :: | + | :: IF |
| − | ::: [1] the AA does not address material deviation | + | ::: <span style="color: red;'>'''[1]'''</span> the AA <u>does not</u> address material adverse deviation |
| − | ::: [2] 10% x (net L & LAE) > TAC - | + | ::: <span style="color: red;'>'''[2]'''</span> 10% x (net L & LAE reserves) > TAC – CAL |
| − | :: | + | :: THEN |
| − | ::: financial analyst should pursue comments from the AA | + | ::: the financial analyst should pursue comments from the AA |
| + | |||
| + | '''Example''': | ||
| + | |||
| + | : Suppose the AA did not address material adverse deviation and that: | ||
| + | |||
| + | :: '''net L & LAE reserves''' = 500 <span style="color: green;">← ''from Liabilities, Surplus and Other Funds, '''(Line 1) + (Line 3)'''''</span> | ||
| + | :: '''TAC''' = 600 <span style="color: green;">← ''from Five-Year Historical Data, '''Line 28'''''</span> | ||
| + | :: '''ACL''' = 280 <span style="color: green;">← ''from Five-Year Historical Data, '''Line 29'''''</span> | ||
| + | |||
| + | : Then: | ||
| + | |||
| + | :: 10% x (net L & LAE reserves) = 10% x 500 = '''50 > 40''' = (600 – 560) = (TAC – CAL) = (TAC – 2 x ACL) | ||
| + | |||
| + | : Therefore, the financial analyst <u>should</u> pursue comments from the AA regarding material adverse deviation. | ||
| + | |||
| + | '''Here are 2 old exam problems regarding the Bright Line Indicator Test''': | ||
| + | |||
| + | : [https://www.battleacts6us.ca/pdf/Exam_(2019_1-Spring)/(2019_1-Spring)_(19)_v2.pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2019.Spring #19)'''</span> | ||
| + | : [https://www.battleacts6us.ca/pdf/Exam_(2016_2-Fall)/(2016_2-Fall)_(20).pdf <span style='font-size: 12px; background-color: yellow; border: solid; border-width: 1px; border-radius: 5px; padding: 2px 5px 2px 5px; margin: 5px;'>E</span>] <span style="color: red;">'''(2016.Fall #20)'''</span> | ||
Latest revision as of 20:08, 1 July 2023
The Bright Line Indicator Test is mentioned in COPLFR.SAO - Step 6B as part of the SAO but it requires knowledge of Odomirok.19-RBC, specifically Alice's 1st Day. That section will only take a few minutes to read so you should do that before proceeding.
Note:
- TAC = Total Adjusted Capital (this is an RBC concept and refers to the balance sheet capital available to a company)
- ACL = regulatory capital level corresponding to Authorized Control Level
- CAL = regulatory capital level corresponding to Company Action Level = 2 x ACL
| Question: what is the Bright Line Indicator Test |
- IF
- [1] the AA does not address material adverse deviation
- [2] 10% x (net L & LAE reserves) > TAC – CAL
- THEN
- the financial analyst should pursue comments from the AA
- IF
Example:
- Suppose the AA did not address material adverse deviation and that:
- net L & LAE reserves = 500 ← from Liabilities, Surplus and Other Funds, (Line 1) + (Line 3)
- TAC = 600 ← from Five-Year Historical Data, Line 28
- ACL = 280 ← from Five-Year Historical Data, Line 29
- Then:
- 10% x (net L & LAE reserves) = 10% x 500 = 50 > 40 = (600 – 560) = (TAC – CAL) = (TAC – 2 x ACL)
- Therefore, the financial analyst should pursue comments from the AA regarding material adverse deviation.
Here are 2 old exam problems regarding the Bright Line Indicator Test:
