Example B: certified reinsurer

bluewind1492

I see in this example F is set to equal 500, but because Cr(63) is just equal 200, then F = Cr(63) - total collateral provided, thus the F must below 200. Am i right?
And why does collateral is equal 200 that you write Cr63(recov) = (amount not subject to collateral requirement) + (collateral provided)=0+200, i don't get it cause Cr63 is just the net recover * collateral provided/collateral required. So Cr 63 =200 mean that you just know net recover * collateral provided/collateral required = 200, how you know that collateral provided equal 200?

Staff - AC

1) "F = Cr(63) - total collateral provided" is incorrect.

2) Cr63(recov) = Credit allowed for net recoverables (Col 63)

"amount not subject to collateral requirement" is a component of Cr63, from Col 57. We generally assume that it is zero.

bluewind1492

1) As i see in the exhibit, F equal to column 67 and column 67 = column 63 - total collateral provided so why F = column 63 - total collateral provided is not correct? If it is not correct, so how is F (column 67) caluclated?
2) i agree that col 57 is equal zero as you assume, but the rest is col 58* collateral provided/collateral required (col 61) = 200 (in your example). So how do you figure out the collteral provided equal 200 by that formula as you don't know collateral required? you only know the collteral provided/collateral required = 20% as provided in example. I don't have problem with the result Cr(63) = 200, i just don't get why collateral provided = col 58 * collateral provided/collateral required

graham

We're looking into this...

graham

The short answer to your question is that the numbers I selected for this example were not internally consistent. (Sorry, my bad!) Here are some explanatory details:

• You are correct that if you calculate C.66 (or Column 66), Total Collateral Provided, then the result is -300, which is less than 0 and that doesn't make sense.

This is because I selected C.19 = 1000 in my example. To correct this, I could have have instead selected:

• C.19
• = Net Amount Recoverable From Reinsurers
• = 3000

Then C.63 would have changed (from the value of 200 in my original wiki example) to this:

• C.63
• = Amount of Credit Allowed for Net Recoverables
• = C.57 + ( C.58 x C.61 )
• = 0 + (3000 x 20%)
• = 600

Fortunately, this would NOT have changed the final answer for C.69, Provision for Overdue Reinsurance Ceded to Certified Reinsurers, because of the application of the minimum function. In the example, the original calculation using C.63 = 200 was:

• provision in column 69
• = min(180 , C.63)
• = min(180 , 200)
• = 180

But with the revised value of C.63 = 600, the final result is still:

• provision in column 69
• = min(180 , C.63)
• = min(180 , 600)
• = 180

I will link to this post from the wiki. Thanks for noticing this. The presentation in the wiki should still be sufficient however for any question you're likely to see on the exam. I worked backwards with the formulas as far as I thought was reasonable. You should not need to memorize the formulas for every column in that section of the table for the exam.