2013 17 c
Can you explain 'Schedule P has no effect because reserves are recorded as write in contra liabilities' for retroactive reinsurance? I have a hard time grasping it. Could you please explain 'surplus gain recorded as special surplus'?
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Can you explain 'Schedule P has no effect because reserves are recorded as write in contra liabilities' for retroactive reinsurance? I have a hard time grasping it. Could you please explain 'surplus gain recorded as special surplus'?
Comments
I need the context for this sentence. Could you point me to where you found it?
2013 Fall 17 c)
Oh, it's in the answers to the question, I see.
The first simply means these type of liabilities are not reflected in Schedule P.
There is a balance sheet section called "special surplus", where the surplus gain from this type of transaction is recorded.
why are these types of liabilities not reflected in Schedule P? In what scenario, would it be reflected on Schedule P? I know Schedule P is mainly on Loss & DCC & earned premium. I'm curious how changes in reserves impact Schedule P
The reserves that are ceded according to the terms of a retroactive reinsurance contract are written into the balance sheet as a contra-liability item, as the answer states. The contra-liability item is in a special items section, separate from loss and expense liabilities. Schedule P ties to the loss and expense liabilities item; it does not include contra-liabilities. As for the reason why this is so, I imagine they wanted to keep Schedule P homogeneous in respects to premiums and losses being forward looking, prospective.
I have a question regarding how the balance sheet is affected by retroactive reinsurance and a run-off agreement.
For retroactive reinsurance, the answer is -Consideration paid will decrease assets.
For a run-off agreement -Consideration paid recorded as paid loss.
How are these answers different?
I couldn't find the "decreasing asset," or a specific discussion of run-off agreement in the wiki. The GAAP section discusses retroactive reinsurance, but no mention of the asset for consideration.
Maybe, "funds held on reinsurance contracts" is what is reduced for the consideration.
Run-off agreement should get he regular reinsurance treatment: consideration increases paid loss.