Odomirok 14 Flashcards
List 2 things that the actuary can refer to when opining on the
collectability of reinsurance recoverables:
- indications of regulatory actions or reinsurance recoverable over 90 days overdue
- listing of reinsurers / liability amounts ceded to each reinsurer/ the collateral held by the insurer
Main purpose of Schedule F
Derive the provision for reinsurance, which is a minimum reserve for the uncollectible reinsurance.
How is the Provision for Reinsurance treated in the Annual Statement
Liability (in the balance sheet)
How does a change in the Provision impact surplus
An increase in the provision results in a direct decrease to surplus.
What should the insurer do if it believes that it is necessary to book a higher amount than what is being indicated by the Provision formula
It should hold an additional reserve. It should record this additional amount on the Income Statement by reversing the accounts that had been used to establish the reinsurance recoverable.
List the 8 parts of Schedule F
- Assumed Reinsurance
- Portfolio Reinsurance
- Ceded Reinsurance
- Aging of Ceded Reinsurance
- Unauthorized Reinsurance
- Overdue Authorized Reinsurance
- Slowpaying Authorized Reinsurance
- Restatement of Balance Sheet
List the components of the Balance Sheet that are populated from Schedule F data
- Assets: Amounts recoverable from reinsurers
- Liabilities: Reinsurance payable on paid losses & LAE/ Funds held by the company under reinsurance agreements/ Provision for reinsurance
How are reinsureds grouped in Part 1
- Affliated insurers: US Intercompany Pooling/ US Non Pool/ Other (Non US)
- Other US Unaffliated insurers
- Pools & Associations: Mandatory Pools/ Voluntary Pools
- Other Non-US Insurers
List the benefits of the “Funds held or deposited with reinsured companies” form of collateral
- reduces credit risk
- reduces administrative burden of having to continually collect money from reinsurer to make payments
- reinsurer gets paid interest
Why do reinsureds like the Letters of Credit (LOC) form of collateral
It is not part of the estate of the insolvent reinsurer, and therefore will not be tied up/ subject to degradation in the event of a bankruptcy
2 reasons that LOCs are expensive to the reinsurer
- banks charge a fee, which will be higher during uncertain economic times
- the LOC is a reduction to reinsurer’s line of credit
3 reasons that insurers may enter into Portfolio Reinsurance arrangements
They want to:
1. Exit a certain type of business
2. Remove the risk/ uncertainty associated with the liability off
their books
3. Obtain surplus relief (via the discounted premium)
Transactions that are exempt from disclosure in Part 3 (whether the contract cedes 75% or more of the Direct Premium Written)
- Intercompany cessions with affiliates
- Cessions to a pool/ group/ association/ organization of insurers that underwrite jointly, which
-is subject to examination by any state regulatory authority, or
-operates pursuant to any state or federal statutory or administrative authorization (such as Worker’s Compensation, or auto assigned risk pool) - Those where under 5% of the surplus is ceded
- Cessions to captive insurers that are regulated in their domiciliary state
Rules to determine the due date of the reinsurance recoverables (to populate Part 4)
Use the following hierarchy:
1. Terms of the reinsurance contract that specify when the reinsurer needs to pay, if specified; or
2. Terms of the reinsurance contract that specify when the insurer needs to report the claim to the reinsurer, if specified; or
3. The date at which the amount recoverable from a certain reinsurer exceeds $50K, and is entered into the insurer’s account as a paid recoverable
When determining the age of reinsurance recoverables, what should be done if no dates have been mentioned, or if the recoverable is under $50K
Record the amount as “currently due”
