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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.

One more introductory task is to see how Schedule F relates back to the balance sheet. There is a very nice table in Odomirok (page 110, table 21) that explains this and you should look at it now, but here is a quick summary of what it shows:

assets (the asset side of the balance sheet has 1 line item from Schedule F)

line 16.1: amounts recoverable from reinsurers (from Schedule F, Part 3)

liabilities (the liability side of the balance sheet has 3 line items from Schedule F)

line   2: reinsurance payable on paid losses and loss adjustment expenses (from Schedule F, Part 1)

line 13: funds held by company under reinsurance treaties (from Schedule F, Part 3)

line 16: provision for reinsurance (from Schedule F, Part 7)

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). Specifically, an insurer wants to assess the likelihood of collecting recoveries from the reinsurer. If the insurer cannot collect then there will be a negative impact on the insurer's surplus and this can impact insurer solvency. Overall however (and these are just my own thoughts) it seems that Schedule F provides only a narrow snapshot of the solvency position of an insurer. There are much more direct ways to monitor solvency than simply focusing on collectability of reinsurance recoveries, examples being the RBC ratio and IRIS ratios.

Anyway, the weaknesses of using Schedule F to monitor insurer solvency 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. We first need to introduce the term Reinsurance Provision (or Provision for Reinsurance) which we'll denote by RP

Question: define the term reinsurance provision

• RP is a minimum reserve (calculated under SAP) that reflects uncollectible reinsurance recoveries

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
• 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

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 its capacity to monitor reinsurer credit risk

disclose details of reinsurance arrangements (Schedule F doesn't measure quality of an insurer's reinsurance)

include management input of uncollectability risk (the formula may miss important risk factors)

include reinsurer ratings (Schedule F doesn't do this even though it is an important risk factor)

replace 20% slow-pay threshold with a sliding scale and consider reasons for slow-pay

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: