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Comments
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Yes, correct.
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Parts e and f are covered in the FIO.DoddFrank section. Yes. It is one of the exceptions stated in the wiki.
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Correct. It may help to think of this in terms of ages of the accident years. 73.5% is age 1 of AY 2015. 80.4% is age 1 of AY 2014. 91% is age 2 of AY 2014. 95.7% is age 2 of AY 2013. And so on.
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This is explained in "Schedule P Practice - Model 2017.Spring #13 (4 problems)", at the very end of the wiki article.
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That's an error. It should be capped by total recoverable.
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This is how it is done in Table 108 of Odomirok.
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The new Flood article, Horn2020, does not get into low participation and 2012 reform, so this question is outdated. There is enough other testable in the new article that they would not re-visit this topic.
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Yes, correct.
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Yes, correct.
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The solutions of these two problems follow the same method. You calculate net income, changes in assets and liabilities that impact surplus, sum them all and get the change in PHS.
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Yes. This is examiner's oversight.
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Yes, correct.
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PHD is subtracted from total income, which includes other income. If you are given PHD, you are to subtract it from income.
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"Reinsurance payable on paid loss and LAE" is the reinsurance payable on the payments made by the cedant to the claimant. The reporting entity assumes reinsurance in this case. If there are both "reinsurance payable" and "reinsurance receivable" …
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Yes, correct.
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Yes, correct.
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"Funds held by company under reinsurance treaties" and "ceded reinsurance premiums payable (net of ceding commissions)" are two actual liability items on the balance sheet. "Letters of Credit" may be something that is included in the first one.
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10-10 rule works off of single-shot events. They have an expected loss and a probability. ERD puts together an expected loss from the loss distribution. It is called a "fat tail," not a "long tail." (Long tail means something else.) It means high…
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Yes, in that it transfers the loss development risk back to the cedant at a certain time, thereby eliminating development tail risk.
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The two risk transfer tests take premium as fixed. Having variable premium throws a wrench in them. You can still derive an expression of reinsurer's loss, but it won't be as straightforward as in these tests.
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It was an oversight of the examiner solution. The 10%-of-surplus cap is stated in the Odomirok text.
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For some reason, discounting is not included in the definition of the 10-10 rule in the syllabus text, and is rather included in the definition of Expected Reinsurance Deficit. They may have accepted your approach as well. Options 2 and 3 fail, b…
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The BattleActs formula is in error: it should read S (current year surplus) instead of m(S). We will make the correction in the wiki soon. Thank you for pointing it out.
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In 2015.S.25a, the potential underwriting loss of the reinsurer is 60% * $100M - $20M. You subtract premium from loss to get underwriting loss. The thresholds are 10% for underwriting loss and 10% for the probability of underwriting loss.
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Direct loss + LAE unpaid as of year-end is a reserve. In Schedule P, ult - paid = case reserve + IBNR.
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Fair-value liability is made up of PV of payments and cost of capital, as you see in this solution.
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I tried two simulations of the question, and the sum of other surplus charges checked out in both.
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The Odomirok paragraph following Table 102 on page 326 explains GAAP accounting of financial instruments.
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Yes, it will. It is the same as what they do in sample 1.
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Yes. Risk-Based Capital is a probabilistic, forward-looking provision, for the risks in the future. By contrast, reserves deficiency, as defined by Schedule P, is a result of historical positions held. Deficient reserves mean surplus is understated,…