Loss Recovery Component
What is exactly this Loss recovery component? When I read the wiki, it just doesn't make sense:
"For the second point, we call it the Loss Recovery"
What even is "it"? The second point in question simply said that when onerous and non-onerous contracts are gfrouped together for the sake of reinsurance we need to determine the portion of the loss allocated to the onerous groups.
Do you have a concrete of Loss-Recovery Component in relation to CSM and LC?
Another concept I'm not really sure I understand is the reversal of loss and the reversal of loss-recovery. What does that mean?
Thank you
Comments
When you have a reinsurance contract that covers an onerous group of contracts, you will have a loss recovery component. When you group contracts together for the sake of reinsurance, for example purchasing reinsurance on personal property, where property Ontario is onerous and property QC is not, you would need to allocate the reinsurance coverage between those two groups.
You can reverse your loss component to a CSM when changing actuarial assumptions. Same thing for loss recovery component.
The Loss recovery component is a pretty fringe topic and I wouldn't focus too much time on it
But is there a link between the Loss Recovery Component and the allocation when Onerous and non-onerous are grouped together?
yeah, the Loss recovery component should only be attributed to the proportion of grouped contracts that are onerous
Does that mean that if a group only has policies with Onerous policies, there won't be a Loss Recovery component? The Loss Recovery component only exists when there is a group with both onerous and non onerous policies
No, you would still have a loss recovery component but you just wouldn't have to do any allocation since they are all onerous
Ok, that's what I thought! The text ad the wiki is just a bit confusing since it links the Loss Recovery Component to point 2. But that makes sense, thank you!