Schedule F

Question 1

Schedule F contains/provides

Answer 1

• contains details of prospective reinsurance transactions
• provides info on assumed reinsurance that may be useful for reasonableness of loss & LAE reserves
• contains info on reserves for participation in pools and associations
• Schedule F indicates how the BS would look gross of reinsurance basis so gives idea of protection provided to BS via use of reins.
• data from schedule is used to populate BS

Assets: amounts recoverable from reinsurers

Liab: reins payable on paid loss, funds held by company under reins agreements, prov for reins

Question 2

main purpose of F

Answer 2

• main purpose is to derive provision for reinsurance = min reserve for uncollectible reinsurance; provision booked as a liab in BS
• collectability of recoverables is important because loss & LAE reserves are net of reinsurance

Question 3

if insurer believes that a higher amount than what is indicated by prov

Answer 3

should hold add. reserve and record this add. amount on IS by reversing accounts that had been used to establish reins recoverable

Question 4

prov reflects conservative nature of statutory accounting because

Answer 4

entire amount may ultimately be collected

Question 5

Part1

Answer 5

assumed reins as of 12/31, curr year

• contains reserves for paid loss&case not IBNR
• contingent commissions: based on profit of ceded business

Question 6

security

Answer 6

required to protect against credit risk

Funds held/deposited with reinsured companies (portion of prem due to reinsurer is withheld), LOC (letter from bank stating it will pay if reinsurer cannot), Amounts of assets pledged or collateral held in trust

Question 7

Part2

Answer 7

prem portfolio reins effected/cancelled during curr year

• enter into portfolio reins when want to exit certain business, remove uncertainty assoc with liab off books, or obtain surplus relief via discounted prem
• reinsurer will require risk prem to assume risk

Question 8

Part3

Answer 8

: ceded rein as of 12/31 curr year

• comprehensive listing of ceded balances by reinsurer so can assess credit risk
• protected cells listed separately; separate company with its own assets and liab but has access to parent’s capital
• column5 indicates individual contracts where over 75% prem is ceded; not common as insurer is designed to be risk bearing entity
• insurer could be acting as fronting carrier for another company in state where reinsurer is not licensed to do business
• footnotes disclose top 5 commission rates where prem > $50k; these contracts generate large amounts of surplus relief

Question 9

Part4

Answer 9

Aging of Ceded Reins

• groups recoverables by age overdue (1-29, 30-90, 91-120, 120+)
• age of recoverable hierarchy: terms that specify when reinsurer needs to pay, terms that specify when insurer needs to report claim, date at which amount recoverable from reinsurer > $50k and is entered into insurer’s account as paid recoverable; if dates have not been mentioned and recov < $50k then amount is currently due

Question 10

overdue %

Answer 10

overdue % = overdue by 120+ days/payments due

Question 11

Provision for Reinsurance encourages

Answer 11

encourages insurers to demand prompt payment and to require LOC or other collateral from unauthorized and slow paying

Question 12

Part5

Answer 12

Prov for Unauthorized Reins

• Unauthorized reinsurers are those that have not been authorized to write business in the jurisdiction
• provision is higher to reflect the fact that they are not regulated

Question 13

unsecured total recoverables & total recoverables

Answer 13

• unsecured total recoverables = recoverables on paid, case, IBNR, UEPR, commission – security
• total recoverables = recoverables on paid, case, IBNR, UEPR, commission

Question 14

Provision for Unauthorized Reins

Answer 14

prov = unsecured total recoverables + 20%*(paid recoverables over 90 days overdue + amounts in dispute)

Unsecured include amount in dispute

Recoverables excludes disputed

• regardless if recoverables are fully collateralized
• provision is capped at total amount recoverable

Question 15

Part6

Answer 15

Prov for Overdue Authorized Reinsurance

prov = 20%*paid recoverables over 90 days overdue

Include disputed balances

Question 16

Part7

Answer 16

Prov for Overdue Reinsurance

-calculates both prov for overdue authorized slow paying reinsurers and total prov for reins liability to be included in BS

Question 17

slow paying ratio

Answer 17

slow paying ratio = paid recoverables over 90 days overdue/(total reinsurance recoverable on paid + amounts received in past 90)

-slow paying if ratio =>20%

Question 18

prov for slow paying authorized reinsureres

Answer 18

prov = max[20%*unsecured total recoverables, 20%*paid recoverables over 90 days overdue]

Amounts in dispute are included in both

Question 19

Part8 & adjustments

Answer 19

restatement of BS to identify net credit for Reinsurance

• indicates what that BS would look like if the insurer did not have reinsurance
• consists of: as reported (net of ceded), restatement adjustments, restated (gross)
• adjustments to assets: reinsurance recoverable on loss & LAE payment (gross amount of 0) and net amounts recoverable from reinsurers (balancing item)
• liab that are adjusted to 0: ceded reins prem payable, funds held, prov for reins
• liab that are adjusted: loss&LAE, unearned prems
• surplus not adjusted (balanced by net amount recoverable from reinsurers)

Question 20

Changes to Schedule F in 2012

Answer 20

• NAIC added a new part6 and shifted original parts 6-8 to 7-9
• NAIC created new category of reinsurer = certified reinsurer; received certification in domiciliary state

Question 21

Certified Reinsurers rating & advantage

Answer 21

• Certified Reinsurers receive a rating between 1 & 6, and the rating impacts the amount of capital that they have to post
• adv of being certified instead of unauthorized: lower Prov& does not need to post as much collateral

Question 22

Schedule F functions

Answer 22

identifies portion of gross loss from assumed reins transactions, help estimate sign of assumed and ceded trans to surplus balance, allow further investigation into financial strength of insurers and reinsurers, identifies reinsurers that may need further scrutiny because slow paying or not regulated

Question 23

Criticism of how monitors solvency

Answer 23

prov is formulaic so ignores management input, formulas has no statistical, historical or actuarial basis, unauthorized reinsurance may provide higher quality protection and/or lower prices, prov may limit amount of competition in US due to penalty assoc with unauthorized, Schedule F does not reveal anything about reinsurer’s solvency

Question 24

provisions for reinsurance does not impact GAAP unless

Answer 24

reinsurance receivables are considered uncollectible