5. An insurer collected $30 million of auto liability premiums this year. Its expected claim costs...

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5. An insurer collected $30 million of auto liability premiums this year. Its expected claim costs is $20 million with $10 million paid losses this year. Also assume that the company has no other assets and liabilities. The insurer has the following assets: $10 million in US government bonds, $10 million in highest quality bonds, and $10 million in common equity. Risk factors for specific assets and liabilities are provided in the following table: Activity US govt bonds Inv. grade bonds Common stock Loss reserve Premiums written Risk Factor 0 0.003 0.15 0.155 0.172 A) Compute the insurer's required RBC. What would be insurance commissioner's appropriate action against the insurer? B) How much additional capital is needed when the insurer invests all its assets in stocks? 5. An insurer collected $30 million of auto liability premiums this year. Its expected claim costs is $20 million with $10 million paid losses this year. Also assume that the company has no other assets and liabilities. The insurer has the following assets: $10 million in US government bonds, $10 million in highest quality bonds, and $10 million in common equity. Risk factors for specific assets and liabilities are provided in the following table: Activity US govt bonds Inv. grade bonds Common stock Loss reserve Premiums written Risk Factor 0 0.003 0.15 0.155 0.172 A) Compute the insurer's required RBC. What would be insurance commissioner's appropriate action against the insurer? B) How much additional capital is needed when the insurer invests all its assets in stocks?

Answer rating: 100% (QA)

A Comp ute the insurer s required R BC ANS WER The insurer s required R BC is 15 million COM PUT ATI... View the full answer