Inconsistencies between All 10 and the actual annual statement

[PPOwl]

How to calculate the provision for reinsurance for slow-paying reinsurers:

According to All 10 (2006, Vol 2a, page 15, Schedule F-part 7), please see col (9) with column heading “Greater of Col (8) or Sch F part 6 Col (1)”:
Col (8) is the total unsecured recoverable including dispute amount
Sch F part 6 Col (1) is the recoverables on paid amount 90 days overdue which do NOT include dispute amount (please see the footnote)

Please see the actual 2004 annual statement blank for Sch F part 7 col 12 heading “Greater of Col 11 or Sch F, part 4 Col 8 + 9”:
Col (11) is the total unsecured recoverable including dispute amount – consistent with all 10
Sch F part 4 Col 8+9 is the recoverables on paid amount 90 days overdue which DO include dispute amount – inconsistent with All 10.

Can anybody clarify?

[miaomiao]

I am confused, too. But I think itself was not clear on this either.

[Da Bears!]

I dunno. My two guesses are:

(1) There was a change in 2005

(2) All 10 misprint (in which case, I'd go with the annual statement and inform All 10 of the possible error)

I believe this is why I go to seminars :)

[Mr. Penguin]

I would guess All 10 error. While I love All 10 for their concise explanations of the syllabus material, the number of errors in their study guides can be mind boggling.

[Quack]

I would definitely trust the Annual Statement and Feldblum's article on Schedule F over All 10. I just noticed that on page 15 of my 2005 All 10 manual, the Schedule F Part 7 sample table has a subtitle, "Provision for Overdue Reinsurance in Authorized Companies as of December 31, 1995" They tend to not update everything that needs to be updated each year.

Here's what you need to know about disputed amounts. They are always included in the provision for reinsurance whether for unauthorized, slow-paying authorized, or non-slow paying authorized. If you're keeping track, that's all of them. Disputed amounts are included in each Part of Schedule F except for Part 6, which has the test for slow-paying. Disputed amounts are excluded from this test.

[PPOwl]

Thanks Quack!

In further reading of Sch F material (fun!!), I have noticed the following differential treatments regarding the dispute amount not yet 90 days due:

For authorized reinsurers (both slow and non-slow paying): NO provision on dispute amount not yet 90 days due;
For unauthorized reinsurers: the provision will be 20% of the entire dispute amount regardless if it has been over 90 days.


Anybody with me on this one?

[Quack]

I'll have to think about that one, but I did discover something when reading Feldblum's Notes to the Financial Statements. On page 34, it says "These amounts in dispute do not enter teh payment schedule in Schedule F, Part 4, but 20% fo the amounts in dispute must be included in the provision for reinsurance." So, it seems that amounts in dispute are excluded from Part 4 of Schedule F as well.

[Quack]

In further reading of Sch F material (fun!!), I have noticed the following differential treatments regarding the dispute amount not yet 90 days due:

For authorized reinsurers (both slow and non-slow paying): NO provision on dispute amount not yet 90 days due;
For unauthorized reinsurers: the provision will be 20% of the entire dispute amount regardless if it has been over 90 days.
Anybody with me on this one?

I'm going to have to disagree with you on this, for authorized reinsurers that are not slow-paying, the provision is the SUM of
20% of loss recoverables > 90 days past due and
20% of the amounts in dispute.

That clearly disagrees with what you stated above.

For slow-paying authorized reinsurers, it's a bit more complicated, the provision is the GREATER of
20% of unsecured total recoverables (including amounts in dispute) and
20% of the loss recoverables > 90 days past due.

"For slow-paying authorized reinsurers, security has the same effect on amounts in dispute as on other recoverables, since all recoverables are treated together."

Now, after having said all that, I think it's really all a moot point. I doubt that a primary insurer would categorize amounts less than 90 days overdue as in dispute. There's no incentive for them to do so, and plenty incentive for them not to, since they get penalized for amounts in dispute through the provision for reinsurance.

[PPOwl]

I agree with you on the calculation of the provision and other parts.

While understanding that the primary company is better off not listing any dispute amount not yet 90 days overdue as dispute, I would like to offer the basis for my conclusion here regarding differential treatments of the dispute amount not yet 90 days due for non-slow paying vs. slow-paying:

Non slow-paying:
Feldblum clearly stated that (see article page 23), “there is no provision for reinsurance for amount sin dispute that are not yet 90 days past due.” and the footnote 36 (see article page 54), “it is not clear if the regulator who designed Sch F intended any provision for amounts in dispute that are not yet 90 days past due...”

Slow-Paying
See footnote in part 6 of the actual annual statement blank, the dispute amount has been taken out. That tells me that part 4 does include disputes. This is consistent with Feldblum’s footnote 34 for the article. However, he seems to say otherwise in the “Notes” article.

Well, at this point, I am just hoping there will not be a problem in the exam with dispute amount less than 90 days due. All 10 has some practice problems like that. It is confusing enough.

[Quack]

Slow-Paying
See footnote in part 6 of the actual annual statement blank, the dispute amount has been taken out. That tells me that part 4 does include disputes. This is consistent with Feldblum’s footnote 34 for the article. However, he seems to say otherwise in the “Notes” article.

I agree there seem to be different indications about whether disputed items are included in Part 4 or not. I noticed the footnote in Part 6, which also made me think that disputed amounts were included in Part 4, then I saw Feldblum's statement in the Notes, which seems very explicit. I don't know what to think. If I come across something definitive, I will post it.

I'm also hoping exam questions won't require this amount of detail. I'm not going to obsess about it anymore for now. There's too much else to study.