Bond Size Factor
In the wiki it says, "==> note that if bond count > 1300 then set BSF = 0 (so no extra RBC charge for really large portfolios)" however in the source of Odomirok-19 it says "Based on the above factors, bonds from 1,300 issues would generate a factor of 1. Therefore if the insurer owns bonds from more than 1,300 issues then the factor would become a credit." Which is correct? Is the BSF capped at a minimum value of 0 or can it be a credit?
Comments
That's an interesting question because the CAS Financial Reporting Text by Odomirok was updated recently. In the prior version, this is what the source text says:
But in the current version of the source text, it says:
Now, the formula for the bond size factor did not change so these statements cannot both be correct, and I believe the current version of the source text is wrong.
I will look into this a little more and get back to you, but the calculations shown in the wiki should still be valid.
Update:
I looked into this a little more and there is definitely a typo in Odomirok:
But the other part that changed from the previous edition is that if there are more than 1,300 issuers, the bond size charge becomes negative. That didn't seem right to me and given that the paragraph already had an obvious error, I assumed that was an error also, but I have been unable to verify it one way or the other. Odomirok does not have an example where there are more than 1,300 bond issuers.
Of course, an exam problem couldn't actually list 1,300 bond issuers in the given information, but they might just give you a number (like 2,000) and you might have to use it to calculate R1, assuming they also provide everything else you need.
Anyway, I will edit the wiki and link to your post. Thanks for pointing this out.