It is presumed that you have reinsurance on your earthquake coverage. Less EPR implies less exposure to earthquakes which then implies less credit risk since your expected receivables will be smaller
Concerning the same question, I see that in calculating the Capital Available (in order to use 10% of it) in part a), the Earthquake Premium Reserve is not included.
However, in the Category A capital, there is: "Earthquake, nuclear and general contingency reserves"
I would have assumed that we needed to include the EPR in the calculation, is there a reason? Or am i misinterpretating the definition of Capital Available?
Capital available uses the earthquake reserves (what is being calculated in the question) and not the earthquake premium reserve. There's a difference between those two
Concerning the same question, I would have assumed that earthquake reserve would impact capital available as it is part of "Earthquake, nuclear and general contingency reserves" One of the response indicates the opposite. Does the MCT guidelines previously wasn't considering it in the capital available?
"Capital available uses the earthquake reserves (what is being calculated in the question) and not the earthquake premium reserve."
Isn't it like a circular reference?
Capital Available includes Earthquake Reserves, but to calculate the Eathquake Resevres, we need the Capital Available.
So for this reason, when we calculate Earthquake Reserve, we don't include Earthquake Reserve when we use the Capital Available. Makes sense, thank you!
Well because one of the component of financial resources is Capital & Surplus, isn't it?
But by seeing your reaction, I guess that Capital Available is not the same!
"Capital available uses the earthquake reserves (what is being calculated in the question) and not the earthquake premium reserve. There's a difference between those two"
chapter 4 of this paper talks about capital required. Then based on your comment, what calculated in a) is both EQ capital available & EQ capital required?
Well, no - what is calculated is the EQ capital required. You are required to deduct EPR from capital available, to the extent it is not used to cover EQ risk exposure. I'm not sure what you mean by EQ capital available apart from what I just covered about the EPR
Comments
It is presumed that you have reinsurance on your earthquake coverage. Less EPR implies less exposure to earthquakes which then implies less credit risk since your expected receivables will be smaller
Concerning the same question, I see that in calculating the Capital Available (in order to use 10% of it) in part a), the Earthquake Premium Reserve is not included.
However, in the Category A capital, there is: "Earthquake, nuclear and general contingency reserves"
I would have assumed that we needed to include the EPR in the calculation, is there a reason? Or am i misinterpretating the definition of Capital Available?
Capital available uses the earthquake reserves (what is being calculated in the question) and not the earthquake premium reserve. There's a difference between those two
Concerning the same question, I would have assumed that earthquake reserve would impact capital available as it is part of "Earthquake, nuclear and general contingency reserves" One of the response indicates the opposite. Does the MCT guidelines previously wasn't considering it in the capital available?
I explained it above in my answer on April 24
"Capital available uses the earthquake reserves (what is being calculated in the question) and not the earthquake premium reserve."
Isn't it like a circular reference?
Capital Available includes Earthquake Reserves, but to calculate the Eathquake Resevres, we need the Capital Available.
So for this reason, when we calculate Earthquake Reserve, we don't include Earthquake Reserve when we use the Capital Available. Makes sense, thank you!
Why would you need Capital available to calculate the earthquake reserves tho?
Well because one of the component of financial resources is Capital & Surplus, isn't it?
But by seeing your reaction, I guess that Capital Available is not the same!
No, you are right - I forgot that the ERC has financial resources which includes capital available as one of the components
"Capital available uses the earthquake reserves (what is being calculated in the question) and not the earthquake premium reserve. There's a difference between those two"
chapter 4 of this paper talks about capital required. Then based on your comment, what calculated in a) is both EQ capital available & EQ capital required?
Well, no - what is calculated is the EQ capital required. You are required to deduct EPR from capital available, to the extent it is not used to cover EQ risk exposure. I'm not sure what you mean by EQ capital available apart from what I just covered about the EPR