The objective of the reinsurance accounting is to record the business, control the funds and maintain proper books and records for the benefit and information of all stakeholders both internal and external. Special natur

CS Professional · Banking and Insurance - Laws and Practice · PYQS · June 2024
The objective of the reinsurance accounting is to record the business, control the funds and maintain proper books and records for the benefit and information of all stakeholders both internal and external. Special nature of Reinsurance Accounting is concerned with technical, financial, legal and underwriting aspects of reinsurance. Premiums, expenses and losses will have effects on both sides of a treaty but these have to be considered on all overall basis of reinsured and reinsurers. It is imperative for reinsurance firm to have proper accounting and financial management so that it can safely settle accounts and create confidence with regulators. The insurance regulators in countries all over the world, including India, have prescribed regulations for insurance and reinsurance accounts and methods of treating certain assets and liabilities. In this connection, IRDAI regulations relating to various items need to be examined. Reinsurance accounting is comprehensively connected with technical, financial, legal and underwriting aspects of reinsurance. The significance of accounting for reinsurance techniques must be understood and appreciated with reference to the class of business, the type or combination of types of reinsurance methods used and the forms of arrangements as placed directly or through brokers. Legal issues and tax matters are significant to reinsurance accounting. Incredible perils like natural perils such as devastating floods, chilling windstorms and life shattering earthquakes became insurable because of sharing of risk through reinsurance. It is not profit or earnings that can count in these risks since one loss in 25 to 30 years can wipe out the entire profits accumulated over a period of time. It is reinsurance that is so special to motivate insurers to venture into these kinds of businesses. A long-standing relationship with the reinsurer can be maintained only if proper accounts are rendered by the ceding company. The actual must be reconciled with past trends for renewal of the reinsurance business. On the basis of the above facts, answer the following questions : Explain how claims are settled under different methods of reinsurance.

Answer & Explanation:

The claim settlement procedure differs from treaty to treaty based on individual agreements. If it is a pro rata treaty, the primary insurer sends a monthly bordereau to the reinsurer, detailing the premiums due to the reinsurer and claims due from the reinsurer. The primary insurer will remit the difference to the reinsurer when the premiums exceed the losses and if the losses exceed the premiums, the reinsurer remits the difference to the primary insurer. If at any time, there are some exceptionally large losses, then it is the convention for the reinsurer to remit the losses to the primary insurer before the end of the reporting period. In the case of excess treaties, as soon as losses exceed the retention, intimation is given and the reinsurer pays on being given proof of settlement, which is simply a statement of losses paid by the primary insurer, together with estimates of current reserves. In the case of aggregate excess treaties, the reinsurers are known to make initial payments say sixty days after the end of the accounting year. If it is clear that the losses will exceed the retention, then payments may be made before the end of the year.

Topics: Re-insurance

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