A Property-Casualty (P-C) Insurance Firm Has Estimated the Following Risk-Based

question 68

Multiple Choice

A property-casualty (P-C) insurance firm has estimated the following risk-based capital charge for its individual risk classes: $\begin{array}{|c|c|c|}\hline \text { Risk } & \text { Description } & \text { RBC Charge } \\\hline \text { R0 } & \text { Affiliated P-C } & \$ 6.0 \text { million } \\\hline \text { R1 } & \text { Fixed-income assets } & \$ 2.0 \text { million } \\\hline \text { R2 } & \text { Common Stock } & \$ 1.0 \text { million } \\\hline \text { R3 } & \text { Reinsurance } & \$ 3.0 \text { million } \\\hline \text { R4 } & \text { Loss Adjustment Expense } & \$ 1.0 \text { million } \\\hline \text { R5 } & \text { Written Premiums } & \$ 2.0 \text { million } \\\hline \text { R6 } & \text { Hurricane } & \$ 1.0 \text { million } \\\hline \text { R7 } & \text { Earthquake } & \$ 0.5 \text { million } \\\hline \text { Total } & & \$ 16.50 \text { million } \\\hline\end{array}$ Is the firm adequately capitalized if it has total capital and surplus of $10 million?

• A)No, its total risk-based capital charge is higher than $10 million.
• B)No, its total risk-based capital charge is lower than $10 million.
• C)Yes, its total risk-based capital charge is higher than $10 million.
• D)Yes, its total risk-based capital charge is lower than $10 million.
• E)No, its total risk-based capital charge is greater than 0.

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Definitions:

Services Retailers

Businesses that sell intangible goods or services to consumers as opposed to physical, tangible products.

Mechanical Efforts

The physical work or labor applied through machines or mechanical processes in industrial or manufacturing contexts.

Supermarkets

Merchandise outlets that carry a wide and complex line of groceries, meat, dairy, produce, and baked goods plus a limited array of nonfood products.

Convenience Stores

Small retail outlets that offer a limited range of everyday items and are usually open for extended hours.