Spring 2014 Q16: Retroactive Reinsurance - Accounting Treatment

elliegreelliegre
edited April 2023 in Freihaut.Reins

Hi,

I am getting confused on how we classify the accounting treatment of retroactive reinsurance. I originally thought there was SAP and GAAP treatment of retroactive reinsurance in reinsurance accounting, but the below problem makes me think that retroactive reinsurance is always classified as deposit accounting.
https://www.battleacts6us.ca/pdf/Exam_(2014_1-Spring)/(2014_1-Spring)_(16).pdf

Thanks!

Comments

  • Staff - ACStaff - AC

    Examiner's answer to part c of this question is the same as the description of the SAP treatment of retroactive reinsurance in the wiki:

    https://battleacts6us.ca/wiki6us/Odomirok.22-23-GAAP#Ceded_Reinsurance_-_Retroactive:_2017.Fall_Q12:~:text=Retroactive%20reinsurance%20under,impact%20on%20surplus

    Deposit accounting is for when the transaction is not considered to be reinsurance at all.

  • elliegreelliegre

    Thank you that is helpful! I see that the very last bullet of the examiners report for part c says 'Retroactive Reinsurance must use deposit accounting' Is this true? And if so does that mean retroactive reinsurance is never considered to be reinsurance at all?

  • Staff - ACStaff - AC

    Retroactive reinsurance may or may not involve transfer of risk. Even when it does, its treatment in financial statements is more similar to deposit accounting rather than reinsurance accounting. But we also think the last bullet point in the examiners' report is probably not 100% accurate, although a more nuanced answer seems beyond what's discussed in the text and probably not required for the exam.

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