2016 Fall #21
I did not know that the reinsurance described in this question counts as retroactive. Is a LPT a type of retroactive reinsurance, and if so, where can I learn more about them?
Or, was I supposed to know this counted as retroactive reinsurance because the line was discontinued, and therefore couldn't possibly be prospective reinsurance? Thanks!
Comments
That question was a little tricky. Sometimes an exam question will specifically ask how retroactive insurance is handled in the financial statements, in which case you just have to write down a memorized answer. I guess here they wanted to add a wrinkle and see if you would realize this is retroactive just by the way they described the situation.
The definition of retroactive insurance is when the primary insurer purchases reinsurance that includes claims that have already occurred.
And in general, a Loss Portfolio Transfer is reinsurance where the primary insurer cedes a portfolio of policies, and these policies may have losses that have already occurred. That's what makes it retroactive. (I suppose a LPT isn't necessarily retroactive but for it not to be, the policies in the portfolio could not have any losses yet. I'm not an expert on that.)
Anyway, it seems this exam question wanted to test if you knew how retroactive insurance is treated but they didn't want to ask you the question in an obvious way.
In any case, I don't think you need to know anything more about LPTs or retroactive reinsurance.