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I believe that the text on retroactive reinsurance is not consistent with
the example at the back. The following is a summary of the points covered
in the text:
1) Cedent to record loss and LAE reserves on a gross basis
2) Assuming company excludes retroactive reinsurance from its reserves
and from its schedules and exhibits.
3) Total amount of Retroactive Reinsurance reported on Page 3 as a
write-in, "retroactive reinsurance ceded or assumed."
a) Contraliability for the cedent
b) Liability for the reinsurer
4) Cedent to restrict the surplus (segregated surplus) resulting from
any retroactive reinsurance as a Page 3, write-in, "special surplus from
retroactive reinsurance account."
5) Surplus gain only becomes unassigned when actual liabilities
recovered or terminated.
6) Account, "retroactive reinsurance ceded or assumed," reduced when
cedent begins to recover funds in amounts larger than the consideration
paid.
7) Reduction in this account
a) Limited to the smaller of the excess of the amount received over the
consideration paid and the surplus gain resulting from the contract
b) Remainder returned to unassigned funds when all related policy
obligations eliminated
8) Cedent to report the initial gain as a write-in on Page 4,
retroactive reinsurance gain, and include under other income
9) Reinsurer to report the initial loss as a write-in on Page 4,
retroactive reinsurance loss, and include under other income
10) Treatment of changes in reserves
a) Adjust Page 4 as with the initial gain/loss
b) Adjust the account "special surplus from retroactive reinsurance"
c) Adjust Notes to Financial Statements
d) Special surplus may not exceed total ceded reserves under such
contracts and considered earned only when cash recoveries exceed the
consideration paid
11) Include each contract in Notes to the Financial Statements relating
to ceded or assumed unpaid loss and LAE
12) Consideration paid reduces the cedent's ledger assets and increases
the reinsurer's ledger assets (Exhibit 3)
Let's deal w/ the ceding company. Point #3 establishes that the ceding
company must create a contraliability for the amount of the retroactive
reinsurance (in the example at the back $10K), and the account is given the
name "retroactive reinsurance ceded or assumed." Point #6 and #7 deal with
the reduction (misnomer since the account is negative) in that account. To
paraphrase, they say that the account can not be reduced until the amount
recovered from the reinsurer is greater than the consideration paid ($8K in
example). However, in the example the account is reduced (increased) [Entry
2 in example] by the amount recovered even though this amount is less than
the consideration paid (Example in back: $2K paid, contraliability increased
by $2K). The example seems like the logical way to treat this. Should
points #6 and #7 actually refer to the segregated surplus amount set up
under point #4. What is your opinion?
Best Regards,
Karl Goring
CNA Insurance
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I believe that the text on retroactive =reinsurance is not consistent with the example at the back. The =following is a summary of the points covered in the text:
Let's deal w/ the ceding company. =Point #3 establishes that the ceding company must create a =contraliability for the amount of the retroactive reinsurance (in the =example at the back $10K), and the account is given the name ="retroactive reinsurance ceded or assumed." Point #6 and #7 deal =with the reduction (misnomer since the account is negative) in that =account. To paraphrase, they say that the account can not be =reduced until the amount recovered from the reinsurer is greater than =the consideration paid ($8K in example). However, in the example =the account is reduced (increased) [Entry 2 in example] by the amount =recovered even though this amount is less than the consideration paid =(Example in back: $2K paid, contraliability increased by $2K). =The example seems like the logical way to treat this. Should =points #6 and #7 actually refer to the segregated surplus amount set up =under point #4. What is your opinion?
Best Regards,
Karl Goring
CNA Insurance