Fall 2015 #15
I debated which category to ask this in (since this problem is covered under the Income Statement battle table), but my question is specifically about the calculation of the reinsurance provision so I thought it would make more sense to ask here...
Hypothetically, if the reinsurer had in fact been slow paying, what would the amount be for 'T' using the notation from the wiki? I'm confused about what all T (= Total Recoverable) encompasses. Does it only include recoverable information as of 12/31/2014?
I've attached how I laid out the reinsurance information from the problem to try and make sense of everything. I'm not sure if it will help or not.
Comments
Total recoverable is the amount recoverable on paid and unpaid loss, as of 12/31/2014, the statement date. It does not change with whether the reinsurer is slow-paying or not.
I understand that T doesn't change if it's a slow-paying reinsurer or not. I'm more so asking what T is in this problem in general since I don't believe it was used in the solution at all. I used the hypothetical of a slow-paying because T is needed in the calculation of the provision. Though, I suppose T is also needed regardless if they're slow-paying or not because we should confirm the final provision is capped by T.
In this problem, is T= $100? The sum of all the unpaid amounts from the reinsurer from Sept. 15, Oct. 15, Nov. 15, and Dec. 15 ($100 = $25 x 4)?
In general, I think I'm having trouble distinguishing the difference between T = Total Recoverable and P = Recoverable on Paid Loss & LAE. For instance, if no amounts are in dispute or overdue, does T = P?
You cannot determine the T in this problem, because yearend reserves are not given: T includes recoverable on unpaid loss. In that sense, the givens are sloppy, because you technically need the T at which to cap the provision.
T is not equal to P (when no amounts are in dispute or overdue) because of the unpaid in T.
Ahh, that clears everything up! Thank you so much.
Sure, good luck.