URR and Provision for reinsurance
Hi,
Can you tell me the differrence between URR and provision for reinsurance as i thought they are both reserve for the credit risk of reinsurance. And do insurer need both of them?
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Hi,
Can you tell me the differrence between URR and provision for reinsurance as i thought they are both reserve for the credit risk of reinsurance. And do insurer need both of them?
Comments
URR is a line item in GAAP reporting, whereas provision for reinsurance is one for SAP reporting. URR includes dispute risk as well as credit risk, whereas PR does not. Insurers that file both types of statements need them both.
I'm confused why PR doesn't include dispute risk. I thought it does because the provision includes amounts in dispute for unauthorized reinsurers, for example. Could you elaborate on this?
PR includes and excludes amounts in dispute in various places in the formula. However, it does not address dispute risk, whereas URR offers an entire separate method for treating dispute risk.
Got it. Thank you!
Sure, good luck.
In the wiki article of GAAP, the relationship between SAP and GAAP surplus is
GAAP surplus = SAP surplus + (provision for reinsurance) + DAC
If there is URR under GAAP, isn't that URR should be also be deducted?
I can see the logic in what you're saying but the treatment of URR in this context is not discussed in chapter 22/23 of the Odomirok text, nor is it specifically discussed in the new reading from the AAA on URR.
If you get an exam question where you have to adjust SAP surplus to get GAAP surplus and they do also provide you with URR, then you can provide a short explanation as to why you believe you need to subtract URR. (Of course, if URR is not provided, then it's moot.)
Without explicit guidance however, it isn't clear from the syllabus readings what the correct course of action is here.