Fall 2018 Q15
I'm a little confused on the Provision for Reinsurance for an Unauthorized Reinsurer. It seems like the formula given for this question and throughout the wiki (I may be wrong and it's addressed somewhere in there - in which case I apologize) is what's shown in picture one. Looking at the newer version of Odomirok I see essentially the formula given in picture 2. Is this new formula correct?
Comments
In Odomirok Table 27, I also see that a cap of the collateral is not imposed on either of 20% of overdues or disputeds, the way this problem and the wiki has it. I am pretty sure that Table 27 governs in this case.
I will contact Graham now to see if he agrees.
Yes, he confirmed as well.
All instances of this formula have now been updated to reflect the 2019 of the Odomirok source text.
Thank you Graham.
For the authorized, slow-paying reinsurer, I was hoping someone could help me understand why the solution used the Total Unpaid Recoverable rather than the Total Recoverable? In my solution, I ended up doing the max(Total Recov-Collateral, amounts 90 days overdue) -> .2max(31-6.1,11).
The examiner improvised some terminology there... Generally, "paid/unpaid recoverable" refers to amounts recoverable from the reinsurer on losses paid/unpaid by the primary, and "total recoverable" refers to the sum of the two. Th examiner came up with "total unpaid recoverable," meaning "total recoverable amount that is not yet paid by the reinsurer to the primary." So, the examiner is really using the "total recoverable."
In your solution, 31 is wrong: total recoverable does not include the amounts that have been paid by the reinsurer.