Q17
Hi, is GAAP treatment for prospective and retrospective reinsurance are exactly the same? the solution for GAAP in b) and c) worded differently, but I think they meant exactly the same thing. Thanks
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Hi, is GAAP treatment for prospective and retrospective reinsurance are exactly the same? the solution for GAAP in b) and c) worded differently, but I think they meant exactly the same thing. Thanks
Comments
Yes, they are the same.
In terms of the GAAP treatment for structured settlements not fully released, how exactly does it work? My first thought was that loss reserves are retained on the balance sheet, and then assets slowly increase as annuity payments are made (as the payments decrease the contingent liability of the insurer), but now I'm wondering if it's more like the reserves are retained and offset by a reinsurance recoverable (equal to the reserve amount... and the annuity cost....?), and then maybe both of these are removed from the balance sheet after the annuity is finished.
When there is no full release, U.S. GAAP treats the structured settlement like a reinsurance contract, thus retaining the loss reserve and establishing an equivalent reinsurance recoverable.
Is the loss reserve retained until the annuity is fully paid out?
Is the equivalent reinsurance recoverable equal to the loss reserve or to the cost of the annuity? Or are these all the same?
Annuity takes the place of a reinsurance contract. The reserve is what is owed the claimant. The annuity negates that reserve. As the annuity is paid out, the reserve and annuity values are drawn down.
Makes sense, thank you!
Sure, good luck.