SCHEDULE F - REINSURANCE

Question 1

SECT C: SCHEDULE F – REINSURANCE

GENERAL COMMENTS

Answer 1

1. Purpose: calculate provision for reinsurance, which is the minimum reserve for uncollectible reinsurance
2. Prospective reinsurance; excludes retroactive (Schedule P also excludes retroactive)
3. Assumed reinsurance premium receivable is net of fix commissions payable, but not net of contingent commissions

Question 2

SECT C: SCHEDULE F – REINSURANCE

COLLATERAL FORMULA

Answer 2

Funds + LOC + M + A + Cbp
= Funds held by insurer for ceded reinsurance
+ Letters of Credit
+ Misc business
+ Allowed offsets
+ Ceded balances payable

Question 3

SECT C: SCHEDULE F – REINSURANCE

CRITICISMS OF PROVISION FOR REINSURANCE IN MONITORING SOLVENCY

Answer 3

1. Consumers
   i. Cost of collateral ultimately passed to consumer
2. Insurers
   i. Formulaic; no management input
   ii. True credit risk overlooked; calculations give false sense of protection
3. Reinsurers
   i. Reinsurer solvency not addressed
   ii. Quality unauthorized reinsurer => better protection/lower prices
   iii. Financially-strong slow-payer will eventually pay; current reinsurer may not be able to withstand stress events