Reinsurance contract held vs issued

ckevin2202ckevin2202
edited October 2021 in CIA.IFRS17

Hi Graham, I was studying and reading the IFRS17-1 paper, the one with reinsurance focus. The paper contains lots of detailed information about reinsurance topics and different treatments about reinsurance held and issued.

I actually still do not really understand the difference between the two. I know you put some information on the IFRS 17 page

reinsurance contracts issued by the reinsurer are just normal direct written contracts from the perspective of the reinsurer
reinsurance contracts held by the ceding entity are separate from the underlying direct written contract

But I still do not understand the big picture of the difference and why it has different treatments for IFRS.
For example: for reinsurance contracts held, the concept of onerous groups does not exist

Do you mind explain it in detail? Appreciate it!

Comments

  • grahamgraham

    All this new IFRS-17 material is probably unfamiliar to most Canadian actuaries because it is still in the process of being implemented. That will change over the coming years as companies develop expertise in dealing with IFRS-17. But back to your question.

    • An example of an insurer issuing a contract is when company A issues a personal auto policy to a "regular customer". Similarly, a reinsurance contract issued by company A is when an insurer issues an insurance contract to another insurer (rather than a "regular customer".) Here, company A acts as a reinsurer that issued a contract to another insurer.
    • A reinsurance contract held is when company A buys coverage from a reinsurer, like excess-of-loss reinsurance or quota-share reinsurance. In this case, company A holds a reinsurance contract that was issued by the reinsurer.

    I think the reason the concept of onerous contracts does not exist for reinsurance contracts held is that onerous contracts apply only to insurance risks that company A takes on. (In other words, contracts that company A issues.) If company A holds a reinsurance contract, then it would be the reinsurer that would classify the contract as onerous or not. (The risks to company A regarding the reinsurer would be accounted for as credit risk.)

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