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REINSURANCE ACCOUNTING
3 INWARD BUSINESS :AS THE NATIONAL REINSURER (GIC) DOES MOST OF THE
INWARD PLACEMENTS SOME GUIDELINES COULD BE GIVEN BY GIC SO THAT ACCEPTANCES
ARE DONE IN AN UNIFORM MANNER. THIS WILL BE USEFUL AT THE TIME OF COMMUTING
THE TREATY.
At the outset I give below heads of account where the accounting treatment in
respect of insurance and reinsurance differ.
HEAD OF DIRECT INSURANCE REINSURANCE ACTION SUGESSTED
ACCOUNT
(2) Surplus over and above the domestic reinsurance arrangements class wise can be placed by the
insurer independently with any of the reinsurers complying with sub-regulation (7) subject to a
limit of 10% of the total reinsurance premium ceded outside India being placed with any one
reinsurer. Where it is necessary in respect of specialised insurance to cede a share exceeding such
limit to any particular reinsurer, the insurer may seek the specific approval of the Authority giving
reasons for such cession.
(3) Every insurer shall offer an opportunity to other Indian insurers including the Indian Reinsurer to
participate in its facultative and treaty surpluses before placement of such cessions outside India.
(4) The Indian Reinsurer shall retrocede at least 50% of the obligatory cessions received by it to the
ceding insurers after protecting the portfolio by suitable excess of loss covers. Such retrocession
shall be at original terms plus an over-riding commission to the Indian Reinsurer not exceeding
2.5%. The retrocession to each ceding insurer shall be in proportion to its cessions to the Indian
Reinsurer.
(5) Every insurer shall be required to submit to the Authority statistics relating to its reinsurance
transactions in such forms as the Authority may specify, together with its annual accounts.
Every insurer wanting to write inward reinsurance business shall have a well-defined underwriting
policy for underwriting inward reinsurance business. The insurer shall ensure that decisions on
acceptance of reinsurance business are made by persons with necessary knowledge and experience.
The insurer shall file with the Authority a note on its underwriting policy stating the classes of
business, geographical scope, underwriting limits and profit objective. The insurer shall also file any
changes to the note as and when a change in underwriting policy is made.
(1) Every insurer shall make outstanding claims provisions for every reinsurance arrangement
accepted on the basis of loss information advices received from Brokers/ Cedants and where such
advices are not received, on an actuarial estimation basis.
SUGESSTED ACTION- O/S LOSSES SHOULD BE BASED ON INFORMATION WHERE
ADVICES ARE GIVEN THE MAXIMUM WEIGHTAGE FOLLWED BY INFORMATION RECD IN
THE ACCOUNTS RECD IN THE CURRENT YEAR . WHERE NO ACCOUNTS ARE RECD IN THE
FINANCIAL YEAR WHAT BASIS THE COMPANY SHOULD ADOPT FOR ESTIMATION OF O/S
LOSSES COULD BE STANDARDISED. A GUIDELINE ON WHAT TREATIES NEED ACTURIAL
VALUATION COULD ALSO BE MADE.
AS-3 Cash Flow statement can be prepared only by Indirect Method only as it is very
difficult to segregate claims / premium break-up for each settlement of o/s balances to the
rein surer. This is because in any treaty especially run-off premium is adjusted with
claims commission and other expenses for each accounting period and settlement is made
for several accounting periods at the same time. An exemption may be made in respect of
insurance companies for AS-3.
AS-11 Foreign exchange Transactions are converted at the average rate in respect of
operations and at year end rate for all o/s balances, This however cannot be applied to
erstwhile unit transactions as well as reserve deposit balances where o/s balances in
original currency are not available. All companies having such balances can agree to a
common cut-off date from which AS-11 can be complied with.
Please note that this write up is only an attempt to identify a viable accounting
standard for reinsurance accounting .This can be circulated to reinsurance depts. Of
insurance companies for their comments. I would also welcome any comment
/suggestions from the members of this group.
Last but not least I take this opportunity in thanking Mr Prabhakar for accommodating
me as a member.