Gross/net of reinsurance and other recoveries

Question 1

How should amounts recoverable be split?

Answer 1

Reinsurance and other recoverables, e.g. salvages

Allowance for the risk of non-recovery should be allowed for

Question 2

What is a reasonable starting point to model reinsurance recoveries?

Answer 2

The model used for estimating gross TPs

Question 3

What should be done for reinsurance applicable to more than one line of business?

Answer 3

An adjustment may need to be allocated per line. The approach taken from year to year should be consistent

Question 4

What should be considered for TPs relating to future events when adjusting TPs from gross to net or vice versa? (3)

Answer 4

1. For proportional RI consider the average proportion retained by the non-life insurer
2. Non-prop : adjust by a fraction of the unearned non-prop RI premium

3, Events occurring basis:
allow for future reinsurance premiums for the timeframe, i.e. unexpired period after the expiry of the current reinsurance and
the expected cost of reinsurance claims under both current and future reinsurance and other recoveries (including sharing, salvage, subrogation, third party recoveries)

Question 5

What should be done where a reinsurer is at default or expected to be at default?

Answer 5

Such reinsurance should be reported on separately rather than as a component of the net TPs