LRECC
What does this mean? I thought that the LRECC was already the carrying amount of the LC that insurer expects to recover from group of reinsurance contract.
Why do we need to consider LRECC? I understand that underlying are losses. But are not the CF that lead to the LC already part of the ARC?
Comments
1) Correct, and therefore it cannot exceed the underlying LC.
2) No, the LC is not part of the ARC; which is why you need the LRECC to adjust the CSM of reinsurance contracts held
In the text, it says that under GMA, LRECC adjusts the CSM of the reinsurance contract held. But I'm confused as CSM is part of LRC and LRECC is booked as part of the ARC, which is separate from the LRC. Could you help clarify?
Also, under both illustrations in the text (pg. 34), is it correct that the LRECC component of the ARC completely goes away or is just changed to 0 at Dec 31, 2023 since that's the end date of the reinsurance contract held?
Hi @bennybees1,
From my humble opinion, I believe the text is referring to Reinsurance Held CSM, which can be both positive and negative. So if you have LC on your underlying, you transfer part of it to the reinsurance held through the LRECC. And this would adjust the Reinsurance CSM
I look forward hearing more from @Staff-T1
Thanks!
You can have CSM on your LRC as well as your ARC. In fact, there is always CSM on your ARC. Once the ARC has been completely run down and coverage gas been provided, then you would have an ARC of 0.
I wouldn't call it transferring the LC but basically that's what happens
Ah okay, so this would mean the LRECC would increase the CSM on the ARC, since it represents an amount expected to be recovered?
It will reduce the CSM. For reinsurance held, a negative CSM means expected profit on the policy while a positive CSM represents a net cost of reinsurance
Ah I forgot that it's the opposite sign for reinsurance held. Thank you!