Deposit Accounting
Are the battlecards on deposit accounting specific to the assuming company? I think this should be clarified because SSAP62 states that for the ceding company, when losses are valued upwards (paid or unpaid), the deposit and the incurred losses would increase (when the battlecard says that income is unaffected).
That being said, what are the advantages of reinsurance accounting over deposit for the ceding company?
Comments
We're looking into this. We'll get back to you today. Apologies for the delay.
The SSAP62 statement really means that what should have been ceded losses (and serve to reduce net loss reserves) are instead put into a non-reserve liability. This makes the RBC R4 charge higher than it would have been had the loss amounts been classified as ceded.
You will find reference to this non-reserve liability in part c of this question:
battleacts6us.ca/pdf/Exam_(2017_2-Fall)/(2017_2-Fall)_(28).pdf
Nevertheless, to better delineate the application for assumed vs ceded, we are creating 4 new battlecards on deposit accounting to replace the previous two. Have a look at these to see if they make more sense. Thanks.
Makes much more sense now. Thanks!
You're welcome!
From one battlecard on "advantage of reinsurance accounting over deposit accounting for the ceding company", it mentioned that reinsurance accounting provides relief to the ceding insurer by reducing net loss reserve. I have two questions here: 1. this reinsurance accounting is prospective reinsurance accounting, right? Since for retroactive reinsurance accounting, the loss reserves do not change. 2. by reducing net loss reserve, the ceding company will have surplus relief, but taxable (UW) income will increase, right?
Besides, I read your comment on April 4th and it mentioned RBC R4 charge change. Could you explain a little bit more how this charge change? Base RBC change or LCF change? Thanks.
Your two statements above are correct. R4 is the reserve charge, which is fraction of net reserves. With reinsurance accounting, you reduce the net reserve amount, owing to the cededs, and this reduces R4.
I am still pretty confused on this concept after going through the battle cards. Battle Card 6 says the for losses the reinsurer records "loss payments to ceding company as a reduction in the liability" (I am assuming this is the liability formed from the premiums in battle card 5). 2017 Fall Q28 seems to be asking about how to record "Unpaid Loss and loss adjustment expenses". This question then give the answer of a write in liability. Is this write in liability the reduction to the Liability created from the premiums that battle card 6 mentions or is this totally different because we are dealing with unpaid amounts as opposed to amounts paid to the ceding entity?
Which quiz's battlecards are you referring to please?
I also have a question about Quiz 1, Battlecard 6.
Under "ceding company", it says "records unpaid losses as a non-reserve liability".
Wouldn't this statement be referring to the assuming company?
I think this previous post will be helpful:
https://battleacts6us.ca/vanillaforum6us/discussion/621/section-thought-process