SIRs Recoverable
I don't understand in what scenario there could be recovery of a Self Insured Retention. From what I could google, deductibles could be payed by the insurer and then recovered from the policyholder. But SIRs are never paid by the insurer, so how could they be recoverable, or owed to the insurer?
Thanks for any clarification.
Comments
Section 4.4 from the OSFI MCT reading leaves out part of the explanation. Self-insured retentions and deductibles have a similar final effect, but, as you said, the cash flows between parties invovled are different. Just to review:
...unless the entity with the SIR goes bankrupt or otherwise cannot fulfill its obligations under the SIR. In this case, the entity's insurer (possibly a reinsurer, if the entity itself is an insurer) might have to "drop down" and pay first dollar losses. The entity's insurer would then be entitled to recover that amount, possibly from eventual liquidation or restructuring of the distressed entity.
This scenario also explains the last sentence in the 2nd paragraph of Section 4.4, that collateral may be required when there is an excessive concentration of SIRs owed by any one policyholder. The entity's insurer shouldn't have to pay their policyholder's SIR, but sometimes it is forced to. Collateral provides a degree of protection against this possibility.
It all makes sense now, thanks!
You're welcome!