Formula Un-ded: deduction = (A + B + C + D) – (E + F + G + H + I)

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in OSFI.MCT

The source text shows a slightly different formula:
A+B+C-D-E-F-G-H

The definitions of the source text notations are also different from formula un-ded which includes one more notation "I".
Did I miss anything?

Comments

  • Staff-T1Staff-T1

    I am seeing the source text on page 38 and the formula is A + B + C + D - E - F - G - H - I which is the same as the wiki?

  • grahamgraham

    The most recent version of the MCT reading defines these variables slightly differently, but that is not the version that's listed in the syllabus. The syllabus references an older version of that reading.

  • valeriyak18valeriyak18
    edited April 2023

    Hi,

    When calculating the capital available, when would this deduction happen?
    Would we deduct this amount before calculating the composite limits or after?

    Do we apply this to the capital available or to the capital required? I am a little confused.
    Also, in section (4.3.3.2) Deduction from Capital Available (Unregistered Reinsurance) it is implied that the deduction is possible if (A+B+C+D)-(E+F+G+H+I) > 0
    But in section (4.3.3.3) Margin Required (Unregistered Reinsurance), the deduction is applied to capital required and is possible if (A+B+C+D)-(E+F+G+H+I) < 0.

    Thanks,

    Val

  • carrots1carrots1

    The way I see it is you have 2 options (@graham you can correct it if I'm wrong!)

    • Deduction (A+B+C+D)-(E+F+G+H+I) > 0, the insurer is expecting recoverables above the amount the insurer pays to the assuming reinsurer. So it can be deducted from the Capital available.

    • Deduction (A+B+C+D)-(E+F+G+H+I) < 0, the insurer is paying more to the reinsurer that what is expected as recoverables. So it can be deducted from the Capital Required.

    And I believe you have to calculate deduct the amount before calculating the composite limits.

    Hope that helps! :)

  • valeriyak18valeriyak18

    I think it makes sense! thanks :)

  • Staff-T1Staff-T1
    edited May 2023

    I do not think the statement from carrots1 is correct.

    For the first statement, (A+B+C+D) represents the expected recoverables, but E+F +G + H + I is more of the collateral backing the recoverables. If the collateral is less than the expected recoverables, then a deduction needs to be made to capital available is required. It is not really just about payables to the reinsurer

    For the second statement, I think the order here is important. In the MCT guidelines, you apply the composition limits before making your deduction as per the order of instructions.

  • maazzu94maazzu94

    @Staff-T1 but that seems to contradict the wiki article directly:

  • Staff-T1Staff-T1

    I do not agree with the wiki. The order is not stated explicitly by OSFI and the best reference is the order of instructions in the memo from OSFI. I'll discuss with Graham

  • zhangjessicazhangjessica

    Hi, wondering if there is a follow-up to this.

  • Staff-T1Staff-T1

    Graham alluded to the following question to justify capping after making deductions. https://www.battleactsmain.ca/pdf/Exam_(2015_1-Spring)/(2015_1-Spring)_(23).pdf
    It is hard to tell if the examiner's report is wrong given that OSFI doesn't provide explicit instructions

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