Certified Reinsurer Collateral Deficiency Prov. For Reinsurance

patbaker12patbaker12
edited March 2020 in Odomirok.14-F

I'm seeing some inconsistencies between the formula in battleacts and the one in TIA. Going back to the one in battleacts, if a reinsurer is required to post 80% and only posts 50% of the collateral required, then the provision is 800-500= 300. In TIA, they say that if the insurer has only posted 50%, then they have received credit for (50%/80%)=62.5% of the collateral required and therefore the provision = 1000-1000(.625) = 375. Which is right?

Comments

  • grahamgraham
    edited March 2020

    That topic isn't covered in any detail in the Odomirok source text. I reread that section of Odomirok, which is about half-way down page 137, the paragraph starting with "The new Part 6 has 2 sections." and here are my comments.

    There was only 1 very simple numerical example and that's what I provided as my Example A in the wiki article for chapter 14 of Odomirok (Schedule F).

    Then I tried to invent another example, Example B, which is the one you referenced in your question. For the reinsurance provision, I simply calculated the difference between what was required and what was permitted. If the true calculation is something other than that, it isn't explained in the source text, so it shouldn't be tested.

    For Example C from the wiki, I used the formula given at the bottom of page 137 of Odomirok and just plugged in numbers. That calculation should be accurate as it's based on an actual formula.

    Note that 2 annual statement examples are provided in the syllabus, one for Liberty Mutual and one for Travelers, but neither include Schedule F-Part 6. That means there's really no way to check the accuracy of this calculation. (Unless you go to a source outside of the syllabus, but you shouldn't have to do that.)

    Final Advice: There should not be a question on this on the exam. If there is, I would just write out the formulas based on what's in the text, and plug in whatever values you're given. (You would definitely get points for doing that.) I would then submit a note to the CAS to alert them that the question covers material not specifically covered in the syllabus.

  • patbaker12patbaker12
    edited March 2020

    Quick note, I think that your formula in the notes for Section 2 is slightly off. I believe that we are concerned with paid recoverables in dispute greater than 90 days overdue

  • grahamgraham

    Do you mean in this formula from the bottom of p137 in Odomirok:

    • provision = Minimum [Maximum [20% * (C) + 20% * (D) and 20% of (F)] and (G)]

    I wrote it a little differently:

    • provision = min [ 20% x MAX ( Pn90 + P^d , F ) , Cp ]

    On p131, they define: (which is my Pn90)

    • (C) = Recoverable on paid loss and LAE greater than 90 days overdue, excluding
      amounts in dispute (Schedule F, Part 4, columns 8 + 9, excluding (D) as applicable)

    And also the following: (which is my P^d)

    • (D) = Recoverable on paid loss and LAE in dispute (per footnotes to the associated parts of Schedule F)

    They don't say anything about 90 days overdue for (D). Am I looking at the same thing you're looking at?

  • patbaker12patbaker12

    I relied on the actual Sch. F since the Odomirok notation for "D" seems to differ in what it actually represents. Col. 10 of the new Sch. F, Part 6, Section 2 represents .20 x "D" and is defined as "20% of Amounts in Dispute Excluded from Recoverables on Paid LALAE more than 90 days overdue" which leads me to believe that this corresponds with your Pd90.

    I think that it also makes sense that in reducing the provision that would be required if the reinsurers were otherwise Unauthorized, the calculation would align more so with that of Authorized reinsurers which uses Pd90 in the calculation instead of Pd.

  • grahamgraham

    Here's how I'm visualizing the quantities: (My picture didn't turn out too well so I hope you can make sense of it. I tried to use spaces instead of dots but multiple spaces get collapsed into 1 space.)

    |=====|=====|
    ||...........|| ...........||
    ||....3.....||.....2.....|| <== top half of picture (2,3): in dispute
    ||...........|| ...........||
    |=====|=====|
    ||...........|| ...........||
    ||....4.....||.....1.....|| <== bottom half of picture (4,1): not in dispute
    ||...........|| ...........||
    |=====|=====|
    <=90 .... | ... >90

    Left half of picture (3,4) is recoveries <=90 days overdue
    Right half of picture (1,2) is recoveries > 90 days overdue

    In the formula I copied from Odomirok:

    • Pn90 = quadrant 1
    • Pd = quadrant 3 + quadrant 2

    These quantities seem like they should correspond to column (5) and column (10) on the new Schedule F, Part 2, and I think they do if you incorporate the footnotes

    • col (5) = quadrant 1 (footnote excludes recoveries in dispute)
    • col (10) = quadrant 3 + quadrant 2 (because all amounts in dispute are excluded from col (5) anyway)

    In other words, for col (10) take all amounts in dispute that were excluded from col (5), but all amounts in dispute were excluded from col (5), both less than and greater than 90 days overdue. So you're simply left with all amounts in dispute.

    So I think(?) they match up in a convoluted way? I could be wrong. I will double-check this tomorrow.

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