Spring 2014 - Q29

miermiermiermier
in Odo.FinReg

Hi,

I am a bit confused for this question. My understanding is that commutation clause basically is reinsurer is no longer cover the payment of cedant. If that's the case, shouldn't be the following results:

  • Insurer assets increases due to transfer back the partial premium;
  • insurer liabilities increases due to lack of reinsurance;
    and vice versa for reinsurer?

thank you

Comments

  • javidjavid

    First of all, I think this question is outdated as per https://www.battleactsmain.ca/wiki/CIA.Reins.

    That said, I can still answer this question using https://www.casact.org/library/studynotes/Klann_Commutations.pdf as a reference. In this reference, they mention that the "buyer" is the "primary" and the "seller" is the "reinsurer". With that said, your answer aligns with the CAS's answer:

    Buyer/Insurer:
    1. Assets: Increase cash (aligns with your note on the insurer's increase in assets)
    2. Liab: Unpaid increase for obligation (aligns with your note on the insurer's increase in liabilities due to the lack of reinsurance)

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