Statutory Issue Paper No62R - Reinsurance Focus

Property and Casualty Reinsurance
SSAP No. 62R
III.
IV.
Treaty Reinsurance Contracts—Catastrophe: The ceding entity is indemnified, subject to
a specified limit, against the amount of loss in excess of a specified retention with respect
to an accumulation of losses resulting from a catastrophic event or series of events;
Facultative Reinsurance ContractsPro Rata: The ceding entity is indemnified for a
specified percentage of losses and loss expenses arising under a specific insurance policy
in exchange for that percentage of the policy’s premium;
V. Facultative Reinsurance ContractsExcess of Loss: The ceding entity is indemnified,
subject to a specified limit, for losses in excess of its retention with respect to a particular
risk.
Characteristics of Reinsurance Agreements
6. Common contract provisions that may affect accounting practices include:
a. Reporting responsibility of the ceding entity—Details required and time schedules shall
be established;
b. Payment terms—Time schedules, currencies intended, and the rights of the parties to
withhold funds shall be established;
c. Payment of premium taxes—Customarily the responsibility of the ceding entity, a recital
of nonliability of the reinsurer may be found;
d. Termination—May be on a cut-off or run-off basis. A cut-off provision stipulates that the
reinsurer shall not be liable for loss as a result of occurrences taking place after the date
of termination. A run-off provision stipulates that the reinsurer shall remain liable for loss
under reinsured policies in force at the date of termination as a result of occurrences
taking place after the date of termination until such time as the policies expire or are
canceled; and
e. Insolvency clause—Provides for the survival of the reinsurer’s obligations in the event of
insolvency of the ceding entity, without diminution because of the insolvency.
7. Reinsurance contracts shall not permit entry of an order of rehabilitation or liquidation to
constitute an anticipatory breach by the reporting entity, nor grounds for retroactive revocation or
retroactive cancellation of any contracts of the reporting entity.
Required Terms for Reinsurance Agreements
8. In addition to credit for reinsurance requirements applicable to reinsurance transactions generally,
no credit or deduction from liabilities shall be allowed by the ceding entity for reinsurance recoverable
where the agreement was entered into after the effective date of these requirements (see paragraphs 86 90
and 8791) unless each of the following conditions is satisfied:
a. The agreement must contain an acceptable insolvency clause;
b. Recoveries due the ceding entity must be available without delay for payment of losses
and claim obligations incurred under the agreement, in a manner consistent with orderly
payment of incurred policy obligations by the ceding entity;
© 2009 National Association of Insurance Commissioners 62-4