Accounting treatment of prospective and retroactive reinsurance according to SAP
in this article, the question "describe the accounting treatment of prospective and retroactive reinsurance according to SAP" is posed, with the answer being:
prospective reinsurance:
- if there is a claim then loss reserves increase
retroactive reinsurance:
- if there is a claim then loss reserves do not increase
- the claim amount is recorded as a write-in liability.
I was getting a little tripped up thinking that this was from the perspective of the primary insurer, but am I correct in saying that this is answered from the perspective of the reinsurer? Or, for example, do loss reserves increase for a primary insurer given a claim? I think this wouldn't make sense since the reserves on the balance sheet are net of Reinsurance but not sure if this is just an accounting treatment thing. thanks!