2018.Fall Q15
On the formula sheet, we have:
Unsecured Recoverable (U) = Max(𝐓𝐨𝐭𝐚𝐥 Recoverable − Security, 0)
On Fall 2018, Q15, they use different total recoverables:
For authorized: total unpaid recoverables
For unauthorized: total recoverables
Is this always the case? For authorized reinsurers, do we only look at unpaid? For unauthorized, we look at all recoverables?
I found this in the Odomirok text on page 127, but I don't completely follow what they are saying:
"Notice for authorized reinsurers where the payments are more than 90 days past due, the
provision in column 11 focuses on paid losses and LAE, or slow payers. This contrasts with
unauthorized reinsurers, where the provision is based on the total recoverable (i.e., that for
slow payers and for unpaid loss and LAE)."
Thanks!
Comments
I'm not too sure I follow your question. Here are the numbers I got from the problem. The formula for T is the same in each case.
Reinsurer A (authorized):
Reinsurer B (unauthorized):
The way they labelled the given information might be a bit confusing. The "paid" and "unpaid" amounts refer to whether the reinsurer has paid the insurer for the insurer's paid recoverables. (The reinsurer wouldn't pay for claims the insurer hasn't yet paid for.) For the rows in the table where the status is "paid", it's no longer a recoverable and doesn't come into the calculation anymore except the Oct 30 payment as part of the slow-pay ratio because it was an amount received by the insurer (or equivalently paid by the reinsurer) within the past 90 days.
Let me know if that doesn't address your question.
I had the same question as gparks. If I'm reading your response right, you're saying that Total Recoverables = Amount in dispute + Amount not in dispute unpaid? And this applies for both authorized and unauthorized reinsurers? The amount that is "paid" is never included in the "Total Recoverables"?
Yes, that's correct. The reinsurance provision is a provision specifically for recoveries that the primary insurer may not be able to collect. So any amounts the reinsurer has already paid play no role. In other they have been "collected" so they don't need to be part of the reinsurance provision.
I'm not quite sure if I'm understanding the difference between Total Recoverable, T vs. Paid Recoverable, P. Is it just that T = sum of P (where P refers to specific reinsurance contracts)? So for this problem, would we be labeling the $5 M recoverable in the first row as P(superscript = d, subscript = 90)?
Just trying to wrap my head around some formulas here, let me know if it makes sense?
T = T(superscript n) + T(superscript d)
T(superscript n) = P(superscript n)
P(superscript n) = P(superscript n, subscript 90) + P(superscript n, subscript <90)
T(superscript d) = P(superscript d)
P(superscript d) = P(superscript d, subscript 90) + P(superscript d, subscript <90)
Actually, total recoverables are different from paid recoverables. Total recoverables includes several categories of recoverables not included with paid recoverables. You can see this by looking at these column headings in Schedule F:
There are links to these Schedule F exhibits here:
About your specific questions: This exam problem is slightly confusing in how it's stated and seems to be treating T and P as the same but in general they are not the same. Also, according to columns 37-43 referenced above, aging of 90 days, 120 days, etc, only applies to paid recoverables.
(Maybe the only recoverables here are paid recoverables, but this isn't stated. In any case, you are not given any information on recoverables other than paid recoverables so there's nothing else you can do.)
About your formulas:
Without fancy formatting, I would probably write my formulas as:
And T should always be greater than or equal to P.