2018 Fall Q15
Hi, I was reviewing this question on the calculation of the provision for reinsurance, and noticed that the formula is slightly different from what we were told:
"Reinsurer A provision for reinsurance = 0.2*max(Total unpaid recoverables – min(total unpaid
recoverables, security), amounts 90 days overdue including amounts in dispute)
Reinsurer A provision for reinsurance = .2 * max ([5 + 6 + 9 – min(5+6+9,6.1)], 6+5) = .2 * 13.9 =
2.78m"
Given the formula, I thought that the formula should be Total Recoverables - Collateral?
Thanks,
Darren
Comments
Notice the label "status of reinsurer's payment" in the table. These refer to amounts not yet paid by the reinsurer to the cedent. They are not "unpaid" in the sense of being reserves. If the reinsurer paid the cedent, that amount does not go in the provision.