When estimate of uncollectible reinsurance > provision for reinsurance
I was paging through SSAP 62 when this statement caught my eye:
85. The NAIC Property/Casualty Annual Statement Instructions, Schedule F, Part 3 – Ceded
Reinsurance, references the provision for overdue reinsurance, which provides for a minimum reserve for
uncollectible reinsurance with an additional reserve required if an entity’s experience indicates that a higher
amount should be provided.
So if Line 16 on the Balance Sheet (Liabilities) represents the formulaic minimum reserve for uncollectible reinsurance, then where exactly (what line) would this "additional reserve" go on the balance sheet? Maybe this is irrelevant to the exam, but I'm just curious.
Comments
The same paragraph concludes:
". . .The minimum reserve provision for reinsurance is recorded as a liability and
the change between years is recorded as a gain or loss directly to unassigned funds (surplus). Any reserve over the minimum amount shall be recorded on the statement of income by reversing the accounts previously utilized to establish the reinsurance recoverable."
So any additional reserve would not be reflected on the balance sheet at all?
Asset line 16.1 is "amounts recoverable from reinsurers." If they mean reversing this line for the extra reinsurance provision, then both the Balance Sheet and the Income Statement reflect it.
The "previously utilized" phrase is cryptic. I don't know why the don't come out and name this account to be reversed. This is what I make out of it.