Retroactive Reinsurance under SAP
Under the Retroactive Reinsurance under SAP header, it says that Schedule P is unchanged (shows gross of reinsurance). To clarify, does this mean gross of retroactive reinsurance? It is my understanding schedule P is net of reinsurance.
Comments
Yes, it means Schedule P is gross of retroactive reinsurance.
This part of the wiki for Odomirok.15-P threw me off, with it being in bold. To make sure I understand, schedule P is in its entirety net of prospective and gross of retroactive reins?
Under Schedule P Concepts, 'Talk to people' subheading:
That is correct. Retroactive reinsurance is recognized outside of Sch P.
Just trying to solidify my understanding:
Are ceded reinsurance reserves basically just unpaid losses that company is expecting to cede to reinsurer? So it is a liability now as it is the unpaid portion of losses, but can still be thought of as an asset to the company as it will be helping company once it is ceded away?
Ceded reinsurance reserves are unpaid losses that the company is expecting to cede to the reinsurer. Balance Sheet liability item 1 (Losses) is stated net of reinsurance - ceded reinsurance reserve is not considered a liability. But it is not considered an asset either. By contrast, asset item 16.1 (amounts recoverable from reinsurers) are the amounts expected to be recovered on paid claims.
in wiki:
gain is recorded as a write-in gain [ note: gain = (negative write-in liability) – (cost of reinsurance) ]
==> goes into other income
==> no change to regular surplus because change goes into special surplus
If the gain goes in other income, then it is considered in net income and hence changing the surplus. Why it also goes to special surplus ?
The details aren't specifically addressed in the Odomirok source text in chapters 22/23 but my assumption is that while the gain does indeed go into other income, it doesn't alter the regular surplus because it's earmarked within the special surplus.
From the "NAIC.Ex2_(Liberty)_p005_income_statement", there is retroactive reinsurance gain in details of write in 1401. That means it is counted in net income and the exact amount of net income is added to last year's surplus.
1401 is the write-in surplus line where it goes, instead of going into line 39, Surplus.