Reinsurance Claims Processes

The term reinsurance recoverable refers to the portion of an insurance company’s losses from claims that can be recovered from reinsurance companies

Understanding Reinsurance Recoverables.

Insurance companies primarily make money from their underwriting activities. When an insurer underwrites a new policy, it collects premiums from policyholders. But it also takes on the liability associated with providing the coverage. Insurance regulators require insurers to set aside reserves to cover potential claims made against the policies that the insurer underwrites.
The insurer will find its underwriting activities limited by how much risk it can handle. One way an insurer can reduce its risk exposure is by sharing some of this risk with reinsurance companies. Essentially, the insurer purchases insurance to cover a risk when it sells insurance policies to a reinsurer. That reinsurer agrees to cover some of that risk in exchange for a portion of the premiums the original insurer collects from the insured parties.

As noted above, a loss that can be recovered from a reinsurance company is called a reinsurance recoverable. The reinsurer agrees to reimburse the original insurer for losses associated with the risk that it takes on. The recoverable is, therefore, the amount paid by the reinsurer to the original insurer or the ceding company. Put simply, it’s the amount of money an insurer gets from a reinsurance company for claims it had to pay out to its clients. Some companies also refer to reinsurance recoverables as reinsurance receivables.

Reinsurance receivables are credits to reinsurance companies such as claims and premium refund of cancellation and lapse.

Since selling policies to a reinsurer often means a reduction in liabilities, reinsurance recoverables are considered an asset for the original insurance company. Having said that, they can be among some of the largest assets on the original insurance company’s balance sheet. In some instances, primary insurers keep collateral from reinsurers to be able to recognize the recoverable as an asset. Reinsurance recoverables become a liability for the reinsurer, though. That’s because there’s a possibility it will have to make a payout on the policies if the underlying insured parties file a claim with the ceding company.

Upon Loss the cedant is obliged to intimate the claim to the reinsurance brokers who will then inform the reinsures/securities as they wait for claim support documents.

Two common ways to report claims include an individual loss report on large losses using a standard form or by regular submission of a bordereau.

The term “bordereau” is simply a fancy word for a description of reinsurance risks with basic information on the type of risks covered, the policies issued and the loss information on reported losses. The bordereau is ideal for reporting on quota share or pro rata contracts where there are a high volume of smaller claims.

The majority of claims submitted to reinsurers are set-up, monitored and promptly paid to the cedant. However, there are occasional situations where the reinsurer will question or even contest a claim.

Timeliness of reporting claims is among the most frequent issues raised by reinsurers

To be continued

Reinsurance Claims Processes, Continuation


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