reinsurance held
why reinsurance held will increase the ARC and the release of RA for reinsurance held reduces profit>
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why reinsurance held will increase the ARC and the release of RA for reinsurance held reduces profit>
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Reinsurance held is by definition the ARC, so if you increase it your ARC will increase. The RA for reinsurance held reflects the amount of risk transferred to the reinsurer from the reinsured, so this means that it increases the ARC (Opposite of what happens for the LRC) -> This is intuitive because when you purchase reinsurance, your benefit is greater than just the expected value of recoveries as reinsurance also provides capital relief. However, when actual recoveries come in, this artificial buffer to the asset will be released and reduces profit as the decrease in value of your asset will be higher than the actual recoveries