Fall 2019 Q15

jyjk0519jyjk0519
in OSFI.MCT

For the Unregistered Reinsurance for Insurance Risk, Deduction as I know it is D = (UEP Ceded + outstanding losses recoverable + reinsurance recievable) - (Reinsurance payable + NOD + LOC) and the LOC = MIN(LOC, (UEP Ceded + Outstanding losses recoverable)x0.3). In this context if we are given the excerpt for 70.60B do we assume that total reinsurance collateral is LOC*

Also with 30.66 it seems as the Net Long Position refers to Foreign Assests in $ CAD. Would Net Short position be Foreign Liabilities in $ CAD?

Thank you

Comments

  • grahamgraham

    Unregistered reinsurance for insurance risk:

    There are no examples in the source text to illustrate this but my assumption is that if you're given 70.60, you would need to check that the value for LOC is within the prescribed limits and cap the LOC value if appropriate.

    A net long position just means:

    • (foreign assets - foreign liabilities) in $CAD is greater than 0

    A net short position just means:

    • (foreign assets - foreign liabilities) in $CAD is less than 0
  • jyjk0519jyjk0519

    Hi Graham,

    Then in the example from Fall 2018 Q15. regarding the unreg reins margin for Insurance Risk.

    To calculate the D, shouldn't we use LOC = 900 = Min(LOC, (UEP + O/S Recov) x 0.15)) which is less than the posted 1000 in the 70.60 exhibit.

    Thank you

  • grahamgraham

    The limit is on LOC but they don't provide that in the version of the exhibit in the exam problem. They only provide the Total reinsurance collateral so you can't test from the given information whether LOC is outside the permitted range. Here is an excerpt from the page 70.60. The exam question only provides column (39).

  • jyjk0519jyjk0519

    How would we know when to not check for the Min(LOC, (UEP + O/S Recov) x 0.15)) or if we can just use the number given.

    Thank you

  • grahamgraham

    You should check if they give you the components you need to test for the limit, like in the following exam problem:

    In that problem, they provide you with the necessary information:

  • jyjk0519jyjk0519

    But in the fall 2018 Q15 they do provide you with the components. UEP and O/S recoverable.

    Thank you

  • grahamgraham

    Yes, but they don't give you the value for LOC (Letters of Credit). So you can calculate the limit on LOC but you can't then cap LOC because you don't know what it is. They only give you the total collateral, which includes LOC but the actual LOC could have been under the cap.

    This is listed as one of the common errors (capping total collateral.) I think they probably meant to provide LOC separately in the given information but mistakenly left it out.

  • grahamgraham

    Sorry, yes they did provide the information you need. They should have checked.

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