2019 Spring Q12.b
Hi, I am having a difficulty time understanding the answer to 2019S Q12.b.
In general, policyholder receives payment from PACICC. Liquidator distribution goes to PACICC. It will first cover the advanced payment made by PACICC. If there is any additional amount, it will be then paid to policyholder. Is this correct?
For 2019S - Q12, let's assume the claim amount is $100,000. Here is my answer to part (b). "Claim recovery is $100,000 - $1,000 = $99,000. Given that no payment hasn't been made by PACICC to policyholder (question doesn't have any information about PACICC payment), the $50,000 from liquidator will be paid to PACICC first and then paid to policyholder by PACICC. Thus, the policyholder will receive $50,000."
Here is the exam solution. "The insured will receive no additional recovery as a result of liquidator of $50,000.
Recoveries from liquidator are used to reduce future assessments for insurers under PACICC."
Can you help me understand which part of my answer is wrong? Thanks!
https://battleactsmain.ca/pdf/Exam_(2019_1-Spring)/(2019_1-Spring)_(12)_v2.pdf
Comments
In your example, if the claim amount was $100,000 and the policyholder received $100,000 - $1,000 = $99,000 from PACICC (assuming $0 from the insurer because the insurer went bankrupt) then the policyholder is already fully compensated. If the liquidator now distributes $50,000, ALL of that goes to PACICC and NONE to the policyholder because the policyholder has already been fully compensated.
when is the case that the policyholder is not compensated? is it the case that the claim amount is greater than $501k?
Let's say the claim amount was $600k, and the policyholder received min($500k, $600k -$1k) = $500k. Am I right to say that the policyholder will receive an additional recovery of min($50k, $600k -$1k - $500k) = $50k as there is only a distribution of $50K is made by the liquidator?
PACICC will only pay up to 250K for any non-personal property policy and 300K for personal property policies. Any claim above that amount would not be compensated. Distribution by the liquidators will not end up as additional payments to the insured, but will be used to reduce the assessments from insurers
are the additional recovery amounts only for the indemnity component? I am just thinking that the full unearned premium amount is 750 -> (9/12)*(1000) ... but they only recieve 525 for the unearned premium component. Why don't get the rest of the unearned amount they would be owed if from the distribution?
The rules is that PACICC only compensates 70% of the UEP so they have been "fully" compensated already. If they say only got 400, then yes they would be eligible for additional recovery amounts
are the limits of 400K and 500K for just the indemnity component (based on the formula) do those apply to the overall total as well? Indem + unearned prem component?
No those are just for the indemnity component