Spring 2014 #16 - showing unpaid instead of incurred
For part b, in the common mistakes of the examiner's report it lists "showing paid and incurred recoveries instead of paid and unpaid". Is this just a quirk of Schedule F that it would show unpaid instead of incurred? If not, then why would showing reinsurance recoverables on incurred loss not be correct here?
Comments
In Part 3, column 7 is ceded paid and column 9 is ceded case. Technically, there is no column for incurred. Column 15 is the sum of loss, LAE, uep and contingent commission, so it's more than just "incurred." This must be why they considered giving the incurred an error.
for part d, one of the solution is "notes to financial statement", is it b/c there is retroactive reinsurance and/or uncollectibility risk of reinsurance from QS? thank you
There is no mention of an uncollectability risk on this claim. On the other hand, the claim is subject to intercompany pooling, which is explained in one of the Notes.
I am confused about the intercompany pooling treatment in this question. The loss happened in 2010 at that time the pooling arrangement is 50% but the answer use the latest arrangement (which was changed in 2012) of 25%. That means intercompany pooling arrangement can date back whatever incurred?
Schedule P intercompany pooling is done on the latest terms of the arrangement, regardless of when the loss happened.
Is it the special treatment under schedule P only or is it also the case in other parts of the annual statements (e.g. balance sheet, e.g. sch F, etc) (i.e. basically the change of allocation can date back) ?
No, the latest terms are used everywhere in the AS.
Hi - In working through part a.i) that asks us for the Incurred Net Loss & DCC from Schedule P, Part 2. Regarding the entry for CY 2012, I found myself calculating the Incurred Loss before any reinsurance applies as 900K+100K+400K=$1.4M. The problem states that in October 2012 that $400K was paid to the claimant BUT it didn't state that the reserve decreased as a result of the 400K payment. Without an explicit reference saying that in the problem, do I have a case here or should I have assumed a paid loss automatically reduces reserves?
When they put it as "adverse development" without any further specification, you need to assume this is incurred development, i.e. development of "everything."
Here, they further give that the claim does not touch IBNR. So, you will be assuming that "adverse development" is on Paid+Case.
Thanks, but I'm still not getting it completely. There is an "AND" statement between the adverse development and the claim payment in the exam question so how is that adverse development comment covering both the case reserve and paid elements?
The way I'm interpreting the exam solution and your response is that CY 2012 ending case reserve is 600K and the Paid Loss = 400K. Which gets you to the 1M incurred loss, but I think that assumes the 400K payment reduces reserves.
"Adverse development" generally refers to ultimates. Plus, the problem tells you to assume this claim does not get any IBNR. So, it means the case reserve became 600K, as you say. The "and" does not alter this flow.
Okay, got it. Thanks!
Sure, good luck.