ENID - Definition [F2018Q17]

chrisboersmachrisboersma
in IFA.Solvency2

Can someone please explain the definition provided in Fall 2018 Q17:
ENID [Fall 2018 Q17]

ENID is event for which the insurer does not have historical data

ENID [IFOA]

the balancing amount required to bring the best estimate before ENID up to an amount allowing for all possible future outcomes

The precursor: binary events were defined as:

loss generating events that are high severity and low probability. Such events are often not represented in historical data used as inputs to reserving methods and may be unforeseeable.

Binary Events = EVENT
ENID = balancing amount

as ENID can be positive or negative the word margin is slightly inaccurate as ENID can be both positive or negative:

Another point that is not made enough of in the above guidance is that ENID "loading" should not necessarily mean an increase in reserves. In considering ENID, one should allow for both positive and negative potential future outcomes, not already allowed for.

Comments

  • javidjavid

    Hello,

    I have reviewed the definition given in the Solvency II paper. I would tend to lean toward that definition being a definition about the "ENID loading" (or the purpose of ENID) rather than a definition of ENID itself. Two reasons:
    1. The definition in the paper ("the balancing amount required to bring the best estimate before ENID up to an amount allowing for all possible future outcomes") includes the term "ENID" in it.
    2. ENID more relates, in my opinion, to an event rather than a monetary amount

    The CAS also stated in their comments the following:

    Only providing the purpose but not defining the concept such as stating “The balancing amount required to bring the best estimate before ENID up to an amount to allow for all possible future outcomes.”

    As for your second comment on the use of the word "margin" or "loading", yes you're right that if something can be both positive or negative, then it's more of an "adjustment" rather than a loading. I guess that's why they had the word "loading" in quotes when they made that last statement.

    Let me know if this helps.

  • chrisboersmachrisboersma
    edited February 2019

    Thanks that makes sense. Not sure why the text didn't say "ENID loading" when they provided the proposed definition.

    Can this be clarified in IFA.SolvencyII?

    https://www.battleactsmain.ca/wiki6c/IFA.Solvency2

  • javidjavid

    Thanks @chrisboersma, I'll forward your suggestion to @graham.

  • grahamgraham
    edited February 2019

    Ok, I've added a few comments to the wiki to try to clarify this. See here:

    Basically the source reading is a little sloppy because the terms ENID and ENID loading are conflated. But the way the exam question was written (2018.Fall Q17) was also sloppy. Maybe that's part of the reason the average score on this question was so low. (It was one of the 3 most poorly done questions on the 2018.Fall exam.)

    Thanks @chrisboersma for raising the issue.

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