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  #11  
Old 06-29-2018, 02:13 PM
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Don't tell us the factors, but maybe you could list the kind of items in your financial statements that you use to calculate the ACL? Also, do you know what items are in the other employee's model?



I'm not sure what you meant by that.
That's one of the reasons why I'm asking because the other model right now just has results. I'd be interested in seeing what assumptions were made to give those results. Right now, I can't really bother those people to get more info...


By no acquisitions, I meant to make an assumption that by not acquiring any companies, it wouldn't blow up the balance sheet unexpectedly and increase investment risks for potentially owning more unaffiliated bonds & equities.
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Old 06-29-2018, 02:39 PM
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Generally speaking, the covariance adjustment in the RBC formula is going to cause the biggest increases to the calculated ACL when more "risk" is added to the largest existing accumulations of risk.

Going through the formula on one of my companies (P&C), I get a 70 cent increase on the next dollar of risk added to written premium, which is my highest contributor to RBC.
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Old 06-29-2018, 03:12 PM
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Generally speaking, the covariance adjustment in the RBC formula is going to cause the biggest increases to the calculated ACL when more "risk" is added to the largest existing accumulations of risk.

Going through the formula on one of my companies (P&C), I get a 70 cent increase on the next dollar of risk added to written premium, which is my highest contributor to RBC.
By having the covariance rule, we are eliminating insurers the potential losses that arise from all these risks occurring at the same time?

Thanks!
I'm glad to hear that in your company's case the NWP is the biggest contributor. I'd like to see if that's the case for the vast majority of P&C companies.
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Old 06-29-2018, 03:25 PM
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By having the covariance rule, we are eliminating insurers the potential losses that arise from all these risks occurring at the same time?

Thanks!
I'm glad to hear that in your company's case the NWP is the biggest contributor. I'd like to see if that's the case for the vast majority of P&C companies.
It will probably be written premium or reserves depending on the mix of business that the company writes. A personal lines-only carrier is likely going to have the biggest contribution from written premium, while a commercial writer might have a bigger contribution from reserves, due to the longer time it takes to pay out those claims.

IIRC my exam 7 (now 6) readings, the life side usually has more asset risk contributing to the RBC due to the different nature of the business and a slight difference in the formula.
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Old 06-29-2018, 03:28 PM
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It will probably be written premium or reserves depending on the mix of business that the company writes. A personal lines-only carrier is likely going to have the biggest contribution from written premium, while a commercial writer might have a bigger contribution from reserves, due to the longer time it takes to pay out those claims.

IIRC my exam 7 (now 6) readings, the life side usually has more asset risk contributing to the RBC due to the different nature of the business and a slight difference in the formula.
Awesome, thanks a lot for shedding some light in this.
Yes, my company right now mostly write personal lines.
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Old 06-29-2018, 04:01 PM
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By having the covariance rule, we are eliminating insurers the potential losses that arise from all these risks occurring at the same time?
If I recall correctly, the covariance rule is to avoid overcounting due to simplly adding together various risks that are actually independent.
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Old 06-29-2018, 04:19 PM
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If I recall correctly, the covariance rule is to avoid overcounting due to simplly adding together various risks that are actually independent.
Yes, there is something similar for BCAR calculation as well.
Of course, these risks could actually interact and exacerbate losses but i think that is rare and the methods currently in practice give insurers these "covariance" benefits.
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