New to the insurance industry and trying to understand a proper journal entry for an excess of loss reinsurance contract - want to understand the theory and the debit and credit upon inception of contract and impact each year thereafter. Example uses hypothetical numbers - but are directly translatable to my real situation
treaty reinsurance excees of loss for all policies written in 2008. we will pay first $50M in losses from inception of contract (assume Jan 1 2015) til the end of contract (5 years) reinsurer will pay excess over $50M up to $20M max.
Best estimates do not show losses exceeeding $50M, however certain economic scenarios show losses could exceed $80M. Which of course under that circumstance reinsurer would have to pay the full $20M
annual premium to reinsurer varies by overall risk in force. premium will be 2% of risk in force. Assume starts at $250M and declines by 20% each year of contract. ($5M premium year one, $4M year two etc..) Premiums to be paid no matter what eeven if reinsurere incurrs no losses.
What is the required GAAP entry at inception of contract?
What is the future years P&L impact ?
Thanks in advance for any help and education
treaty reinsurance excees of loss for all policies written in 2008. we will pay first $50M in losses from inception of contract (assume Jan 1 2015) til the end of contract (5 years) reinsurer will pay excess over $50M up to $20M max.
Best estimates do not show losses exceeeding $50M, however certain economic scenarios show losses could exceed $80M. Which of course under that circumstance reinsurer would have to pay the full $20M
annual premium to reinsurer varies by overall risk in force. premium will be 2% of risk in force. Assume starts at $250M and declines by 20% each year of contract. ($5M premium year one, $4M year two etc..) Premiums to be paid no matter what eeven if reinsurere incurrs no losses.
What is the required GAAP entry at inception of contract?
What is the future years P&L impact ?
Thanks in advance for any help and education