An Introduction to Reserving and Financial Reporting Issues for Non-Traditional Reinsurance

Non-traditional reinsurance contracts, and finite risk reinsurance contracts in particular, are structured differently from traditional reinsurance. The incorporation of special features that make each contract unique tends to preclude standard portfolio loss reserving. This paper introduces the basic features related to common types of finite risk reinsurance contracts that provide prospective (e.g., aggregate stop-loss) or retroactive (e.g., adverse development cover) coverage. This paper will also discuss some of the considerations related to financial reporting issues for non-traditional reinsurance. The appendix will provide basic examples of prospective and retroactive deals to illustrate the balance sheet and income statement impacts for both the buyer and seller of finite risk reinsurance.