F
Contents
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 recoverabledefine:
- reinsurer payabledefine:
- reinsurer funds helddefine:
- reinsurance provisionE (2017.Fall #14) balance sheet:
- restate to gross of reSched F solvency testing:
- strength/weaknessE (2017.Spring #14) reinsurance provision:
- calculate"Certified" category:
- benefitsreinsurance provision:
- how to improveE (2016.Fall #13) reinsurance provision:
- calculateSched F solvency testing:
- strength/weaknessE (2016.Spring #14) reinsurance provision:
- calculate"Certified" category:
- benefitsE (2015.Spring #15) reinsurance provision:
- calculatereinsurance provision:
- how to reduceSAO reins. collectability:
- vs. Sched F provisionE (2013.Fall #16) SCENARIO:
- slow-paying reinsurer?reinsurance provision:
- calculatereinsurance provision:
- calculate (unauthorized re)Sched F solvency testing:
- potential enhancmentsE (2012.Fall #19) reinsurance provision:
- calculateSAO reins. collectability:
- vs. Sched F provisionSAO reins. collectability:
- vs. Sched F provisionSched F solvency testing:
- strength/weakness
Full BattleQuiz You must be logged in or this will not work.
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
commentOdomirok
page range
# of PagesSchedule 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 represent 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
- strengths:
- 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
- In General: Schedule F doesn't directly measure reinsurer's solvency which is the true source of uncollectability risk
- In General: Schedule F doesn't measure the quality of an insurer's reinsurance
- weaknesses:
There was a variation on the above question that appeared in 2013.Fall #16. If you understand the weaknesses listed above, you could probably come up with the answer without having memorized it.
Question: how can Schedule F be enhanced to improve it's capacity to monitor reinsurer credit risk
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...
Full BattleQuiz You must be logged in or this will not work.
BattleCodes
Memorize:
Conceptual:
Calculational: