Difference between revisions of "F"

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(Solvency Monitoring with Schedule F)
(Solvency Monitoring with Schedule F)
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::* RP is formulaic - but no statistical basis for formula  - may not represent true collectability risk
 
::* RP is formulaic - but no statistical basis for formula  - may not represent true collectability risk
 
::* RP penalizes unauthorized reinsurers '''regardless''' of their financial strength
 
::* RP penalizes unauthorized reinsurers '''regardless''' of their financial strength
::* RP penalizes slow-paying reinsurers '''regardless''' of their financial strength '''and''' 20% threshold is arbitrary
+
::* RP penalizes slow-paying reinsurers '''regardless''' of their financial strength <u>and</u> 20% slow-payer threshold is arbitrary
 
::* Schedule F doesn't directly measure reinsurer's solvency which is the true source of uncollectability risk
 
::* Schedule F doesn't directly measure reinsurer's solvency which is the true source of uncollectability risk
 
::* Schedule F doesn't measure the quality of an insurer's reinsurance
 
::* Schedule F doesn't measure the quality of an insurer's reinsurance

Revision as of 16:09, 20 January 2019

  Forum

Pop Quiz

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

  • reinsurance provision calculation
  • Sched F solvency testing - strengths & weaknesses of using Schedule F for solvency testing
  • SAO reinsurance collectability amount versus Schedule F reinsurance provision
  • "Certified" category - benefits to insurers & reinsurers of this special category
reference part (a) part (b) part (c) part (d)
E (2018.Spring #9) define:
- reinsurer recoverable
define:
- reinsurer payable
define:
- reinsurer funds held
define:
- reinsurance provision
E (2017.Fall #14) balance sheet:
- restate to gross of re
Sched F solvency testing:
- strength/weakness
E (2017.Spring #14) reinsurance provision:
- calculate
"Certified" category:
- benefits
reinsurance provision:
- how to improve
E (2016.Fall #13) reinsurance provision:
- calculate
Sched F solvency testing:
- strength/weakness
E (2016.Spring #14) reinsurance provision:
- calculate
"Certified" category:
- benefits
E (2015.Spring #15) reinsurance provision:
- calculate
reinsurance provision:
- how to reduce
SAO reins. collectability:
- vs. Sched F provision
E (2013.Fall #16) SCENARIO:
- slow-paying reinsurer?
reinsurance provision:
- calculate
reinsurance provision:
- calculate (unauthorized re)
Sched F solvency testing:
- potential enhancments
E (2012.Fall #19) reinsurance provision:
- calculate
SAO reins. collectability:
- vs. Sched F provision
SAO reins. collectability:
- vs. Sched F provision
Sched F solvency testing:
- strength/weakness

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In Plain English!

Introduction

Schedule F is all about reinsurance. When I start a new chapter, I like to orient myself by sketching out the chapter contents. According to Odomirok, Schedule F has 8 parts. (Links to Liberty Mutual's Schedule F are provided below. Spend a few minutes looking at these exhibits. You'll become more familiar with them as we work through the calculations later in this wiki article.)


link

title/topic

comment
Odomirok
page range

# of Pages
Schedule F – Part 1 assumed reinsurance 110-114 5 pages
Schedule F – Part 2 premium portfolio reinsurance blank (for Libery Mutual) 114-114 1 pages
Schedule F – Part 3 ceded reinsurance 115-121 7 pages
Schedule F – Part 4 ceded reinsurance (aging) 121-122 2 pages
Schedule F – Part 5 provision for unauthorized reinsurance 122-126 5 pages
Schedule F – Part 6 provision for overdue authorized reinsurance blank (for Libery Mutual ) 126-128 3 pages
Schedule F – Part 7 provision for overdue reinsurance blank except for totals (for Liberty Mutual) 128-131 4 pages
Schedule F – Part 8 restatement of balance sheet (to identify net credit for reinsurance) blank except for totals (for Liberty Mutual) 128-138 11 pages

Both Schedule P and Schedule F are important for actuaries. Schedule P shows actuarial triangles, which are central to an actuary's work in determining reserves. Schedule F is also crucial because an insurer's net reserves depend on the amount of reinsurance assumed and/or ceded. But it's also possible that Schedule F plays no role whatsoever. This would be the case if an insurer has no assumed or ceded reinsurance. That probably isn't likely, but it still feels like Schedule F is not as important as Schedule P. Indeed, the examiners seem to feel the same way because Schedule P is consistently more heavily tested than Schedule F.

Solvency Monitoring with Schedule F

There are several exam problems that discuss the strengths and weaknesses of using Schedule F to monitor the solvency of an insurer (see BattleTable above). The weaknesses are discussed on the last page of chapter 14 in Odomirok. Let's dive right in as there's a pretty good chance a similar question will appear on future exams.

Let RP = Reinsurance Provision (or Provision for Reinsurance). The answers to the question below generally relate to the calculation of this provision.

Question: identify strengths & weaknesses with using Schedule F as a monitoring tool
strengths:
  • RP is formulaic - easy to compare across years & companies
  • RP is formulaic - hard to manipulate because inputs are numbers from financial statements
  • RP accounts for reinsurer credit risk with penalties for unauthorized reinsurers (often this means foreign insurers)
  • RP accounts for reinsurer credit risk with penalties for slow-paying reinsurers
  • Schedule F shows impact to surplus if reinsurance contracts are canceled
weaknesses:
  • RP is formulaic - may mask management's better informed estimate of collectability risk
  • RP is formulaic - but no statistical basis for formula - may not represent true collectability risk
  • RP penalizes unauthorized reinsurers regardless of their financial strength
  • RP penalizes slow-paying reinsurers regardless of their financial strength and 20% slow-payer threshold is arbitrary
  • Schedule F doesn't directly measure reinsurer's solvency which is the true source of uncollectability risk
  • Schedule F doesn't measure the quality of an insurer's reinsurance

2018.Spring #9

Let's look at this exam question from 2018.Spring:

E (2018.Spring #9)

I was little surprised because they haven't asked a question like this before. Most of the old questions are calculations. Anyway, they ask you to define and classify the given financial statement quantities as assets, liabilities, or income statement items. This is a very typical question from an accounting course and if you've had an accounting course, you'll probably find it easy. Here's how I think about it:

  • Money coming in (a receivable or recoverable) is good! A receivable is an asset.
  • Money going out (a payable) is bad! A payable is an liability.

...finish this later...

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BattleCodes

Memorize:


Conceptual:


Calculational:

POP QUIZ ANSWERS