Risk Transfer

ive looked through papers but not exactly the source accounting guidance. my understanding was that risk transfer was applied per transaction and not combining transactions.

I have 3 entities. Plan, Insurer, reinsurer. Plan buys policy from insurer who is reinsured by reinsurer. There are no other relevant policies or treaties.

  1. Insurer issues policy to Plan for excess of loss. $2M in premium for coverage per event of $unl xs $500K. This policy def passes risk transfer as a standalone.

  2. Reinsurer issues treaty to cover insurer for (1) events $unlimited xs $1M and (2) if the layer $500k xs $500K per event accumulates more than $1.25M in total. Collects $750K in premium. This treaty def passes risk transfer as a standalone.

Do any of the accounting rules require considering risk transfer for the insurer net of the reinsurance? In the above, the insurer is holding $1.25M in net premium and has a net exposure of $1.25M for events.

If there is a paper to read I would appreciate a link or some keywords to look for it.


No, I don’t believe the rules require considering the net position after reinsurance, especially if the reinsurance is provided under a treaty vs. fac. They are treated as separate transactions.

You can read through the Risk Transfer Practice Note which also contains sources such as SSAP 62R and FASB 113:

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I had a very similar situation occur once, and my company’s experts agreed with the conclusion above: risk transfer is evaluated separately for each contract.