2016 Spring #26

I agree with Alice that it was unreasonable to expect you to memorize the factors for various non-invested assets in the R3 calculation. However, I noticed on review this morning that Odomirok explicitly names the factors on pg. 257. I suggest updating the Wiki to say 0.05 instead of 0.1 as the "something reasonable" so the generally correct value sticks in everyone's brain. Source text:

The RBC charge for these assets is the net admitted value included in column 3 of the asset
side of the balance sheet (page 2 of the Annual Statement), each multiplied by a factor of
0.050, with the exception of investment income due and accrued, which receives a factor of
0.010.

Comments

  • Yes, 0.05 is a better fudge value. I've changed it, thanks. I went back and looked at the RBC factors for other assets and 0.05 does seem a more reasonable value to use elsewhere as well if they don't give you the factors and you're stuck.

  • For this example, why doesn't the Reinsurance Recoverable from Contract #2 get added to the Credit Risk Charge for Non-Invested Assets as "amts receivable relating to uninsured plans"?

  • Reinsurance recoverable from reinsurance contracts that fail the risk transfer test does not go with amounts receivable relating to uninsured plans. It gets deposit accounting treatment and is therefore left outside the scope of R3.

  • In the case of the contract using deposit accounting, that means that losses must be recorded gross of that reinsurance. Does that mean that the RBC charge in R4 is assumed to include those loss recoverables? Or is it entirely outside the scope of RBC?

  • Yes, R4 is calculated on reserves gross of reinsurance recoverables that are subject to deposit accounting.

  • In the examiner's report, when testing whether or not to split the Reinsurance Recoverable RBC charge between R3 and R4, they check to see if the Reserve RBC is greater than the non-invested assets plus the total RBC for reinsurance.

    This contradicts what's in the Wiki summary page that states we should be comparing the Reserve RBC to non-invested assets + .5*reinsurance. Would you please confirm which is correct? Thanks!

  • That was changed in the 2021 update to the Odomirok text. The explanation in the 2016 exam problem is now outdated. I will include a footnote in the BattleTable about this.

Sign In or Register to comment.