Unregistered Reinsurance deductible question

jc2018jc2018
edited October 2018 in OSFI.MCT

Hi Graham,

I just want to confirm if my understanding is correct.

Is the formula here (https://www.battleactsmain.ca/CP_MCT_04d_InsRsk_unreg_re.php?myID=54005616&priorDate=18.10.18&record=11&score=4.000&WET=244.948974&fadeFactor=0.0001)

-max(0,-D)

because this is a reduction on the margin (capital REQUIRED) and the formula here (https://www.battleactsmain.ca/CP_MCT_02b_DeducUnregRe.php?myID=54004152&priorDate=18.10.18&record=11&score=4.000&WET=200.000000&fadeFactor=0.0001)

deduction = max(0,D)

because this is a deduction on the capital AVAILABLE?
one formula is -ve D and another is +ve D since the combination of receivables/payables reduce either available or required but cannot not impact both at the same time?

Thank you,

Comments

  • grahamgraham

    Yes! That's something I had spent time working out when I was studying for this exam myself:

    • D > 0:
      ** deduction from CapAvail, CapReq not affected ==> (MCT lower)
    • D < 0:
      ** CapAvail not affected, reduction to CapReq ==> (MCT higher)
    • D = 0:
      ** no effect on CapAvail or CapReq

    Side note on how I defined "D"

    Something that you probably noticed is that in Section 4.3.3.2 of the MCT paper, they have this formula:

    • deduction from capital available = A + B + C - D - E - F - G - H

    (provided the quantity is positive) and they define D as the amount payable, which is different from the way I'm using it. I wish I had chosen a different letter for the deduction in my own formula. But nobody has mentioned it so I'm assuming everyone has figured it out and isn't confused by it.

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