Unregistered reinsurance: Deduc cap available and Margin for cap required

rlessardrlessard
in OSFI.MCT

Hello !

I am a bit confused regarding the deduction from capital available and the margin required for unregistered reinsurance.
I understand the fact that if you don't have enough collaterals to protect your risk from unregistered reinsurance, you lower your capital available. However, the thing that confuse me is: Do we do both the deduction in capital available and the required margin, or we do one or the other ?

Ex:
A+B+C-D = 5 000$
E+F+G+H = 2 000$
Deduc from capital available = 3 000$
Margin for cap required = 0,2* 5 000$ = 1 000$ ?

Comments

  • rlessardrlessard

    And another question regarding this topic:

    If we have more collaterals than capital required, is it true that we can decrease the margin for capital required down to 0 by (E+F+G+H) in excess of (A+B+C-D) ?

  • Staff-T1Staff-T1

    For your first question, that is right. You do need to do a deduction from capital available and also calculate a margin for capital required.
    Yes to your second question

  • kamkam

    Hi, some stupid follow up questions on this topic:
    1. the above result ($1000) calculated for Margin for capital reqired (unregistered reinsurance) is used in the calculation for insurance risk, right?

    2.
    what if A+B+C-D = $2000, E+F+G+H = $5000
    Deduction from CapAv = A+B+C-D-(E+F+G+H) = -3000.
    when calculating CapAv, shall I apply the negative deduction (which means it's an addition now) or make it zero (which means no deduction from unregistered reinsurance)?

    3 (following 2's assumption)
    in this case, margin for capital required (unregistered reinsurance) = 0.2 x 2000 = 400.

    further deduction = 3000
    so final margin for capital required is 0?

    Thanks a lot!

  • Staff-T1Staff-T1
    I'm travelling for work and don't have access to my computer so I'll get back to this when I'm back later this week
  • Staff-T1Staff-T1
    1. Yes, the margin for unregistered reinsurance is a component of insurance risk -> But the insurance risk component is usually split out into its subcategories
    2. You only apply a deduction if this amount is greater than 0. It's highlighted in the examples provided
    3. I think you are getting confused here. You are mixing the two concepts together. You should view the deduction on capital required as one concept, and the margin for unregistered reinsurance as another unrelated concept. One is a deduction to Capital Available and the other is a calculation for a component of the Capital Required. They are not the same.
      In this case, Capital req for unregistered reinsurance = 400, deduction to capital available is = 0
  • uwt3yao111uwt3yao111
    edited March 18

    Hi, are the following correct?

    Case 1: There's not enough collateral from unregister reinsurance. therefore only reducing capital available.
    If A+B+C-D = 5000
    E+F+G+H = 4000
    Deduction from Capital Available = A+B+C-D-(E+F+G+H) =1000
    Margin(unreg reins) = 0.2* 5000 = 1000

    Case 2: There is excess collateral from unregister reinsurance, therefore only reducing capital required.
    If A+B+C-D = 5000
    E+F+G+H = 5200
    Deduction from Capital Required = (D+E+F+G+H) - (A+B+C)= 200.
    Because of the deduction of 500 due to excess collateral,
    Margin(unreg reins) = 0.2* 5000 - 200 = 800.
    And if the deduction is larger than calculated margin, the margin is capped at 0.

  • Staff-T1Staff-T1

    Case 1: Yes
    Case 2: No reduction to capital available and yes you are correct wrt the capital required for unregistered reinsurance

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