Chapter 4 LIC Problem (missing 1.1 in calculation)

arianeguayarianeguay
in OSFI.MCT

Hello! I was a bit confused with the LIC example under chapter 4 of the MCT wiki.
My main confusion is why we do not multiply the 1.1 to the LIC margin in the problem of Chapter 4. Here are some screenshots to explain:

*** Source text: (formula including 1.1)

*** Battleacts wiki (also seems to be missing the 1.1 in the formula stated from text, not the same formula as current source text): formula in greenbox includes 1.1

*** The confusing piece for me is the first Chapter 4 example, where we do not multiply by 1.1 in the LIC calculation. Is there a reason why?

Thank you!

Comments

  • grahamgraham

    This was a change from the previous version of the MCT source reading. The 2023 version did not have the 1.1 factor, but the 2024 version (which is the current version) DOES include the factor of 1.1.

    We will correct that. Thank you! @Staff-T1

  • arianeguayarianeguay

    Thank you! :smile:

  • JConceicaoJConceicao

    What's the purpose of the 1.1? If it's not a risk factor, what is it?

  • grahamgraham

    The derivation of the 1.1 factor isn't explained in the source text but you can think of it as a way of being more conservative. The 1.1 factor increases the required margin by 10%.

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