Odomorik 14: Schedule F Flashcards
Provision for reinsurance
Minimum reserve for uncollectable reinsurance; liability on balance sheet
Schedule F Part 1
Assumed reinsurance
Schedule F Part 2
Portfolio reinsurance
Schedule F Part 3
Ceded Reinsurance
Schedule F Part 4
Aging of ceded reinsurance
Schedule F Part 5
Unauthorized reinsurance
Schedule F Part 6
Overdue authorized reinsurance
Schedule F Part 7
Slow paying authorized reinsurance
Schedule F Part 8
Restatement of balance sheet
Balance sheet sections populated from schedule F
Assets: Amounts recoverable from reinsurers
Liabilities: Reinsurance payable on paid L&LAE
Funds held by company under reinsurance
Provision for reinsurance
Contingent commissions
Based on profit of ceded business
Funds held or deposited with reinsured companies
Portion of premium due to reinsurer is withheld; reduces credit risk, administrative burden, reinsurer gets interest
Letters of Credit
Bank assumes risk of reinsurer not paying; expensive for reinsurer (reduction to line of credit, fees)
Portfolio reinsurance
Used to exit a LOB, obtain surplus relief, remove risk from books
Protected cell
Essentially separate company with own assets and liabilities, but access to parent’s capital
Fronting carrier
Ceding more than 75% of the premium to an insurer not licensed for business in the state
Footnotes to Schedule F, Part 3
Top five commission rates of contracts where ceded premium > $50K
Surplus relief
WP * ceding % * commission rate
Age of recoverable
Hierarchy:
- Terms of contract specifying payment date
- Terms of contract specifying report date
- Date at which recoverable > $50K
- Currently due
Provision for unauthorized reinsurer
Unsecured total recoverables + 0.2*(paid recoverables > 90 days or in dispute)
Unsecured includes amounts in dispute
Provision for authorized slow-paying reinsurer
0.2*max (unsecured total recoverables, paid recoverables over 90 days due)
includes amounts in dispute
Provision for authorized non-slow-paying reinsurer
0.2*(recoverables over 90 days overdue)
includes disputed balances over 90 days overdue
Slow paying ratio
(Recoverables > 90 days overdue) / (Total recoverables + amounts received in past 90 days)
Total recoverables
Unpaid recoverables (paid, case, IBNR) + UEPR + commissions
Certified reinsurer
Rated 1-6; lower number, less needed collateral
Provision for certified reinsurer, section 1
Collateral deficiency = (1 - Posted/Required)*Recoverables
Provision for certified reinsurer, section 2
Min[0.2*Max[ (Overdue + Dispute, unsecured recoverable)], credit permitted for net recoverable)]
Criticisms of Schedule F
Provision ignores management input; no statistical basis; “unauthorized” not bad; no speaking to financial strengths of reinsurers; false level of precision; may limit competition within US
GAAP handling of provision for reinsurance
Does not have one
SAP treatment of provision for reinsurance
Additional liability; lowers the surplus
When provision for reinsurance may be insufficient
Estimates of eventual losses are too low (penalty not harsh enough)
How provision for reinsurance encourages solvency
Encourages insurers to demand prompt payment; encourages insurers to require collateral
How provision for reinsurance may damage company’s ability to stay solvent
Authorized over unauthorized not always better
Costly to obtain LOCs – may have to increase rates
