Reinsurance Receivable in Formula Un-Ded
The formula un-ded = (A+B+C)-(D+E+F+G+H) looks like there is the reinsurance asset on the left hand side in brackets (what the reinsurer would owe the insurer) and collateral on the right hand side in brackets. Why would reinsurance receivable be included in the right hand side? This appears to me as something the reinsurer would owe the insurer and so we would want a risk charge associated with them.
I noticed the source states "(D) are the amounts receivable from the assuming insurer that are already included in (A) or (B) above (foreign branches only);" So perhaps we are simply backing out these receivables but why would there be no risk charge to them?
Comments
Your initial understanding of (A + B + C) = reinsurance assets and (D + E + F + G + H) as collateral is correct.
This calculation is mainly done to adjust the capital available. There is no risk charge associated here. My understanding is that OSFI does not want certain reinsurance receivables to penalize the capital available. As to what exactly those receivables are and why they would do that is not stated in the paper.
I see thank you