2015 Fall 18 b)
Hi,
How do we know that the net unpaid claims discounted is the APV(net claim liability) not the PV(net claim liability), same ask goes for the net premium liabilities = APV(prem liab) and not the PV(prem liab), I would personally assume the given claim and prem liability correspond to the PV value excluding PfAD since PfAD are given in a separate column
Thanks
Comments
I completely understand your question because if "net unpaid claims discounted" means APV, then how would you describe PV in words? I guess you would have to say "net unpaid claims discounted without PfADs". Note also that in the examiner's report comments, not removing PfADs in this calculation was listed as a common mistake, so you're definitely not the only person with this question.
I suppose the answer would be that the item 'Unpaid Claims and Adjustment Expenses' from page 20.20 (Balance Sheet Liabilities) in the quarterly statement is APV and that's your starting point for the MCT calculation. (However, I couldn't find where that is explicitly stated anywhere in the CCIR annual statement instructions.) Then section 4.2 in the MCT reading is as follows:
Maybe you could figure it out from that, but it would have been much better if there had been an example in the MCT source reading where that was made clear. Note that this came up again in the following exam problem, but in general this calculation has not often been asked on the exam:
Thank you so much for the thorough explanation, and especially for linking to another relevant question!
You're welcome!
This was my calculation:
LOC limit = min (2200, 0.3x(5000+3000)) = 2200
D = (5000+3000+500) - (0+8500+2200) = -2200
CapReq = (5000+3000)x0.15 - max(0,-(-2200)) = -1000
Ofcourse, a negative CapReq does not make sense, but why are my steps incorrect?
Your calculation is correct, but like you said it can't be negative so you would just set it equal to 0 when this happens. (Another way of saying this is take the max of 0 and -1,000 as is done in the examiner's report.)