Collateral items
I'm trying to make a list of items that would be considered collateral when calculating the Provision for Reinsurance. This is what I have so far, am I missing anything?
- Funds held by company under reinsurance treaties
- Letters of Credit
- Ceded balances or premiums payable
Comments
Yes, these are the main ones. For calculating Provision for Reinsurance, the problem would usually give you what the collateral is, rather than make you look for it. Although, never say never.
Sorry, pretty basic question but I would like to understand this. I'm confused on collateral being "posted".. is the collateral posted from the reinsurer as a backstop for the reinsured? So for letters of credit with confirming banks, if reinsurer doesn't fulfill their obligations, reinsured still can rely on the confirming banks as a backstop?
I'm confused because funds held under reinsurance treaties is a liability for the reinsured because that is some of the premium due to the reinsured eventually. So i thought collateral was being "posted" by the reinsured". But for certified reinsurer topic, one benefit for reinsurer is that they can post collateral less than 100%.
The answer is yes to your two questions.
"Funds held under reinsurance treaties" are collateral-type funds provided by the reinsurer that the reinsured temporarily holds. They are to be eventually returned to the reinsurer, so they are considered the reinsured's liability. They do not consist of premium.