Fall 2019 #15
This problem asks you to calculate the Reinsurance Provision for an authorized reinsurer in part a. Then, in part b, it changes how the collateral is held and asks how the Reinsurance Provision calculation might change.
I mistakenly calculated the reinsurer as not slow-paying (by including the $800,000 for an unpaid claim) in part a.
In part b., I said there would be no change, because the RP for an authorized reinsurer who is not slow-paying does not depend on the Collateral.
The examiner's report listed my mistake in part a. as a Common Error. But it doesn't address whether it would have accepted my answer to part b. or not. Any thoughts?
Comments
According to what I've read about grading, if you make a mistake in a prior step of a problem you are only penalized once. If you use the incorrect number in a later step, they would not penalize you again provided everything else was correct.
But this situation may be a little different because the fact they were testing you on was whether you knew that collateral held in trust with the reinsurer doesn't count as an offsetting security. And although your conclusion was correct assuming the reinsurer is not a slow-payer, the graders wouldn't know from this whether you knew that fact. So while I don't think you would have gotten the full 0.5 pts, they may have given you 0.25 pts.
In part c, I noticed that 'ceded reinsurance premiums payable (net of ceding commissions)' was not included in the examiners report for a possible liability item. Do you think we would have got credit if we put that? Or is there a reason why they only accepted those 3 specific liability items?
The answer in the examiner's report was based on the 2014 edition of Odomirok. In that edition, there were only 3 liabilities items taken directly from Schedule F. In the current (2019) edition of Odomirok, there are now 5 liabilities items listed as coming from Schedule F so the alternative you mentioned would now be accepted (as would unearned premiums for ceded reinsurance.)