2018 fall Q13

exam6_pass

we didn't calculate PACICC assessment from "other jurisdiction" because company B doesn't have business there?
and the Prov PACICC assessment $50K is based on company B -> so that's why we use prov where company B exsists?

graham

Yes, that's correct. Assessment is done by jurisdiction so when they ask for Company B's assessment you can ignore jurisdictions where Company B has no business. In this problem that means you can ignore everything aside from Alberta.

If Company B had non-zero business in other jurisdictions, you would have to repeat the calculation for each jurisdiction separately then sum the results.

LATE EDIT: I don't like my answer. Please see below my next post after @exam6_pass.

exam6_pass

thanks makes sense.. i think what threw me off was they asked for company "A" assessment, and A has business in both jurisdiction.

graham

Oops, @exam6_pass. I read the question too quickly and I don't like my original answer to you. Here's a better answer:

• To calculate the PACICC assessment for company A, you would calculate the assessment separately for each jurisdiction.
• So, technically you do have to calculate the assessment both for Alberta and other jurisdictions for company A.
• Now, you are given information about PACICC advances and recoveries for company B in Alberta and you use this information to calculate the assessment for company A in Alberta as is done in the examiner's report solution. (You have to assume these were the only advances and recoveries in Alberta.)
• But now you also have to make the assumption that company A's assessment from other jurisdictions is 0. You weren't told whether PACICC made any advances or received any recoveries in other jurisdictions so you just have to assume there weren't any. Then using the formula A = B x (C/D) for other jurisdictions, you would have B=0 and therefore A=0. (Note that in this formula, A & B don't stand for Company A & B. Here, A = insurer's assessment and B = net amount assessed by PACICC.)

exam6_pass

thanks a lot, that makes sense!

victory1995

@graham why does the solution use 10 million (instead of 9.9 million) when calculating the assessment? Intuitively, Company B has gone insolvent and their DWP being included in the total means that the assessments to all other participating insurers will not add up to 100% of the needed assessment (it will only cover 9.9/10 mil of the $50 000).

graham

That's a very good question. I double-checked the source reading to see whether it said to use premium only from solvent insurers in the formula A=Bx(C/D) but it doesn't specify.

There are a couple possibilities:

1. PACICC simply forgot to consider this shortfall.
2. PACICC didn't forget to consider the shortfall but assumed that most of the time the insolvent insurer's premium would be only a small percentage of the total premium. In this case, the shortfall could be made up by the "Fund". This fund was established in 1998 with a pre-insolvency assessment to make sure PACICC can meet it's financial demands. This fund also earns interest and as of 2009 has accumulated to $43 million.

ChristoRoyer

I had the exact same reasoning victory1995 has. Do you think both answers would be accepted by the graders?

Staff-T1

I would lean towards option B that Graham provided. No, they would not accept it. They specifically mentioned in the common errors section that this is incorrect