SSAP 62: Reinsurance

Question 1

Reinsurance definition

Answer 1

Assumption by an insurer all or part of a risk undertaken originally by another insurer

Question 2

Treaty reinsurance

Answer 2

Transfers whole class or type of business written

Question 3

Facultative reinsurance

Answer 3

Transfers individual risks

Question 4

Criteria for reinsurance

Answer 4

Insolvency clause; recoveries without delay; no guarantee of profit; quarterly reporting; funding clause

Question 5

Retroactive reinsurance additional criteria

Answer 5

Premium paid must be fixed; compensation to either party prohibited; contract cannot be cancelled w/o approval of commissioner

Question 6

To be treated as reinsurance

Answer 6

It needs to be reasonably possible for the reinsurer to realize a significant loss

Question 7

Accounting treatment, prospective reinsurance paid

Answer 7

Reduction to WP, EP

Question 8

Accounting treatment, reinstatement premiums

Answer 8

Earned over period from reinstatement to expiration

Question 9

Accounting treatment, change in estimated reinsurance recoverables

Answer 9

Changes in losses incurred

Question 10

Accounting treatment, reinsurance recoverable on unpaid losses

Answer 10

Reducing respective reserves

Question 11

Six principle functions of reinsurance (Blanchard)

Answer 11

Increase large line capacity
Provide CAT protection
Stabilize loss experience
Provide surplus relieve
Facilitate withdrawal
Provide UW guidance

Question 12

Accounting treatment of commutation, ceding company

Answer 12

Premium = recovery of paid loss; eliminates reserves ceded to reinsurer

Question 13

Accounting treatment of commutation, reinsurer

Answer 13

Premium = paid loss; eliminates associated loss reserves