2015 Fall Q26a
did the definition of "reasonably self evident" change or is it typically used interchangeably with "substantially all"?
I am wondering how I should handle a similar question on the exam since I am assuming that these are 2 separate methods for testing for risk transfer.
I answered that contract #1 does not meet the "reasonably self evident" criteria because the premium isn't low and there is a loss ratio cap. (Self Evident is described as low premium and possible chance of significant large loss). The solution stated that the contract does meet "reasonably self evident" but gave reasons from the "substantially all" criteria.
Comments
While the wiki lists these two as distinct methods, note that Method 2 is named " 'substantially all' exception." It is essentially an exception to Method 1. When you find that existence of risk transfer is not reasonably self-evident according to Method 1, but that risk transfer does exist due to transfer of substantially all risk according to Method 2, it is Method 2 that prevails.
Ok. That makes sense. Thank you.
Sure, good luck.