PACICC Assessment Process (2018F-13b)
The problems asks to calculate company A's assessment for:
| DWP | |
|---|---|
| Company A | 200,000 |
| Company B (insolvent) | 100,000 |
| Total Participating Insurers | 10,000,000 |
With a total assessment of 50k
The solution uses 1000 = 200 / 10000 * 50000
In the report, it is noted that a common mistake was excluding the DWP of company B from the total,
i.e. 1010 = 200 / (10000 - 100) * 50000
Wouldn't not excluding the insolvent insurer from the total result in an total assessment that falls short of the total required, since I'm assuming the insolvent insurer does not pay an assessment...? Or does the insolvent insurer pay an assessment from the liquidation?
Comments
No it's just algebra here. The percentages are all multiplied by 50000 so PACICC will always receive 50000 regardless of whether we subtract 100 from the denominator or not.
For example, assume that there is only one other company, C that writes 9,700,000 in DWP.
Then the assessment under your example is now:
There is no shortfall for PACICC. They still get their money. It's just the proportions are different.
Anyways, the correct solution is the one that is given in the Examiner's report
So you are saying that the total participating insurers (10m) already excludes B? Since 200 + 9700 = 9900
Because if the total includes the insolvent insurer, then the sum of the remaining solvent insurers will not sum to 100% and there will be a shortfall.
For example, if A and B are the only insurers in the jurisdiction, would the Total given be 300k or 200k?
If 300k, then the assessment of A, without excluding the insolvent insurer would become
50000 * 200 / 300
And there is a shortfall as the remaining 1/3 cannot be assessed from the insolvent insurer.
Okay I see what you mean. If that's the case I would assume that the insolvent insurer has to pay an assessment too which doesn't make sense since I would assume whatever he has left would be in the 50K of recoveries
But that's what the source says and I would just follow it even if it doesn't make sense because the exam is near ~