Note
References such as page 70.60 or column (20) refer to the sample A/R (Annual Return) or sample Q/R (Quarterly Return).
Notation
UEP:
Unearned Premium
NOD:
Non-Owned Deposits (all acceptable NODs including those under an RSA)
→ Also included in this column is FUNDS to secure payments from assuming insurer (new for 2018.)
Formulas
D
= (UEP + O/S + Reins Recv) – (Reins Payable + NOD + LOC*)
LOC*
= min[ LOC, (UEP + O/S) x 30% ] (Amounts for LOCs are limited, but the limit is applied in aggregate. See notes 2a & 2b below.)
= (UEP + O/S) x 15% – max(0, -D)
(if < 0 then set to 0)
Transition
Policies ceded before Jan 1, 2020: Use 15% factor. (Valid through Dec 31, 2022)
Policy effective date on or after Jan 1, 2020: Use 20% factor.
Beginning Jan 1, 2023: All policies use 20% factor.
(Thx EK!)
1
The second paragraph of (4.3.3.3) implies that this margin calculation should be performed separately for each reinsurer. The individual results are then summed to get the final capital required for the unregistered reinsurance component of insurance risk.
2a
For a single reinsurer, if the LOC aggregate limit is breached, simply cap that reinsurer's LOC at the limit.
2b
For multiple reinsurers, according to the Letters of Credit subsection under (4.3.3.4) from the MCT paper, "this limit is applied in the aggregate, not to individual reinsurance exposures." (The MCT paper provides no example to clarify the mechanics of this calculation.)
