Odomirok Ch 14: Schedule F 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:
’- Affiliated insurers: US Intercompany Pooling/ US Non Pool/ Other (Non US)
- Other US Unaffiliated 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 reinsurers line of credit
3 reasons that insurers may enter into Portfolio Reinsurance arrangements:
They want to:
- Exit a certain type of business
- Remove the risk/ uncertainty associated with the liability off their books
- 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 Workers
Compensation, or auto assigned risk pool) - Those where under 5% of the gross annual premium 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:
- Terms of the reinsurance contract that specify when the reinsurer needs to pay, if specified; or
- Terms of the reinsurance contract that specify when the insurer needs to report the claim to the reinsurer, if specified; or
- The date at which the amount recoverable from a certain reinsurer exceeds $50K, and is entered into the insurers account as a paid recoverable
Define a certified reinsurer
non-U.S. based reinsurers that are domiciled in jurisdictions that
are designated by the NAIC as a Qualified Jurisdiction (Bermuda, France, Germany,
Ireland, Japan, Switzerland and the U.K.) that have applied for and received
“certification” from the insurer’s domiciliary state.
