Basic topics of reinsurance accounting

cgc2018

I have a question at this paper, the reinsurance function, stabilize the loss experience, at the numeric example, the unearned premium is not ceded; but the summary part, page 9, it says Unearned premium reduced ( unless ...). I don't understand well here what does it mean UNLESS condition?

this impact my understanding for exam 2017 fall Q17, which only Unearned premium is not ceded as well?

I am wondering any situation Unearned premium should be ceded under stabilize loss experience?

graham

This is what normally happens regarding unearned premium:

• a portion of the premium that's unearned at the end of the year should be ceded to the reinsurer
• the portion ceded depends on the reinsurance contract and how much time is left in the term of the contract

If the reinsurance contract were written on July 1 and effective for 1 year, some of the gross unearned premium on Dec 31 would be related to the reinsurance contract, and would be ceded to the reinsurer

But for the example in the text, and the exam problem 2017.Fall Q17, the reinsurance effective date is Jan 1, which means the reinsurance expires on Dec 31. Therefore there is no unearned premium at the end of the year that is related to the reinsurance contract. In other words the ceded unearned premium at Dec 31 is 0.

So, the UNLESS condition is satisfied for both the example and the exam problem:

• there is a single effective date for the reinsurance: Jan 1
• the accounting date is Dec 31
• the reinsurance expiry date is Dec 31 (same as accounting date)

When these 3 conditions are met, do not reduced the unearned premium.