FASB - 944

Question 1

GAAP criteria for deposit accounting

Answer 1

If reinsurance contract doesn’t indemnify the ceding company against loss, its not reinsurance, we use deposit accounting

Question 2

Such indemnification occurs when both

Answer 2

significant insurance risk applies (timing and UW)
reasonably possible reinsurer will incur a significant loss - covers entire scenario, not individual assumptions
- likelihood of the entire set of assumptions

these conditions are independent.

Question 3

How should we evaluate if a significant loss can occur?

Answer 3

• PV of cash flows occuring bw the parties
  interest rate should reflect
  expected timing of pmts
  duration over which reinsurer can invest the funds

Question 4

Substantially all exception

Answer 4

if no significant loss, then this can still mean risk transfer if substantially all applies
- ceding company retains insignficant insurance risk
compare net cash flows bw - allows ceding to get reinsurance on a very profitable book

Question 5

Duration of contracts

Answer 5

short or long duration - depends on how long it’s in force
short duration =>
- protection for a fixed period of short duration
- contract allows insurer to cancel or change the provisions
very subjective…..