2018 Fall Q15 - Adjust CapAv for unregistered reinsurance
Hi,
I am struggling with whether to adjust the CapAv for unregistered reinsurance for this question.
In the examiner's report of this question, one of the common errors it mentioned is:
"Adjusting Capital Available for unregistered reinsurance (capital available was given in the
question)"
However, the question didn't make it clear that whether the CapAv given in the question is gross or net of deductible.
Should we always just assume the CapAv given in the question is net of deductible?
Thanks!
Comments
Given that adjusting the capital available for unregistered reinsurance was a common error, it's clear that the exam question was not stated clearly. (They really should have said that the given value was net of all adjustments/deductions.) Anyway, if this comes up again, I would assume the value is net, but state your assumption.
In general if you're unsure about how to interpret something, you should include a short phrase in your answer so the graders know you understand what you're doing.
It's important to realize most of this sort of content is based off off of the P&C-1, which you should be very familiar with. The names are often common:
"Capital Available:" with colon. [Header not a Line #]
"Subtotal: capital available gross of deductions" ( Or gross Capital Available) [Line 29]
"Total Capital Available" [Line 59]
Line 59 = Line 29 - Deductions (Lines 30 - 46).
Capital Available in general should refer to Line 59.
Furthermore the MCT guidelines provides a rather specific definition:
The guideline is incorrectly lax with the term and phrasing for "Capital Available":
This makes it seem like there is "Capital Available" before the deduction (which as per the definition is not correct).
It would've been nice if the guide had defined "gross capital available" so that the above phrases could have been more clear:
In general
If you're given a amount of "Capital Available" directly I would recommend assuming it is "Total Capital Available" as per Line 59. If you're given the subtotals under the heading "Capital Available:" assume you need to deduct from these amounts (similar to what you would do if you were completing page 30.62).
A better way to say this: if you're given the components do calculate the gross capital available (category A, surplus, reserves, AOCI) don't forget to also deduct everything else (reinsurance, goodwill, intangibles, etc.) However, if the question give you "Capital Available" you can make the simpler assumption that you have everything.
Make sense! Thanks!