Fall 2018, Q12c - Rehabilitation definition
Why is saying that rehabilitation involves reorganizing the insurer to continue operations wrong? The bullet point above even says that rehabilitation involves continuing to exist.
And should the BA article be corrected or expanded upon here?
Also, how would I go about grading my answer here?
Comments
Meeting immediate obligations with immediate future earnings, or with capital infusion, is not the same thing as continuing operations, because the latter has an implication of longevity, whereas rehabilitation is usually followed by liquidation, as the wiki note says.
I think the grader would equate your use of the word "sustainable" to continuing operations, and therefore not give you credit on that point.
The examiner's report seems to imply that there's a difference between "continuing to exist" and "continuing operations." How do I wrap my head around this?
I misinterpreted the BA article to assume that continuing operations was a goal of rehabilitation. Although the BA article is not wrong, I think it should be reworded to avoid confusion/misinterpretation:
"Continue to exist" implies "exist for a short-period," just long enough to meet debt obligations, until company is liquidated. "Continuing operations" implies company will continue to exist for an indefinite period, which is not the situation in a rehabilitation case.
We will consider the revisions to the notes you suggested. Thanks.
Thanks, I've edited the wording as @humbertov2 suggested to make it clearer.
Sorry to keep stirring the pot, but I keep changing my notes and am getting more confused
From 2019F 4: https://battleacts6us.ca/pdf/Exam_(2019_2-Fall)/(2019_2-Fall)_(04).pdf
To me this means continued operations, i.e. will attempt to continue to exist for an indefinite period.
From NAIC Solvency p4 footnote 5
To me this could be interpreted either way, but "remedying" the problems sounds like continued operations.
Side note, this source also lists 'conservation' as an outcome of receivership, which was not listed on the examiner's report.
I don't have access to the source for Porter, maybe could we get a quote from there?
Either way, if asked I'd probably just put 'an attempt to temporarily continue business by increasing assets and/or decreasing liabilities' as I think that meets both interpretations for rehabilitation. Thoughts?
Porter says "rehabilitation is generally a prelude to liquidation." The wiki says "rehabilitation usually leads to liquidation." These two mean about the same thing. Further, the NAIC.Solvency footnote you quote is not necessarily at odds with this. It says the outcome of rehabilitation could be either continued operations or liquidation. Porter just emphasize that usually, the outcome is liquidation. Your last interpretation would work.
Ok thanks!
Sure, good luck.