The objective of the reinsurance accounting is to record the business, control the funds and maintain proper books and records for the benefit and information of all stakeholders both internal and external.
Special nature of Reinsurance Accounting is concerned with technical, financial, legal and underwriting aspects of reinsurance. Premiums, expenses and losses will have effects on both sides of a treaty but these have to be considered on all overall basis of reinsureds and reinsurers. It is imperative for reinsurance firm to have proper accounting and financial management so that it can safely settle accounts and create confidence with regulators.
The insurance regulators in countries all over the world, including India, have prescribed regulations for insurance and reinsurance accounts and methods of treating certain assets and liabilities. In this connection, IRDA regulations relating to various items need to be examined.
The significance of accounting for reinsurance techniques must be understood and appreciated with reference to the class of business, the type or combination of types of reinsurance methods used and the forms of arrangements as placed directly or through brokers.
Legal issues and tax matters are significant to reinsurance accounting. Mind-blowing perils like natural perils such as devastating floods, chilling windstorms and life shattering earthquakes became insurable because of sharing of risk through reinsurance.
A long-standing relationship with the reinsurer can be maintained only if proper accounts are rendered by the ceding company. The actual must be reconciled with past trends for renewal of the reinsurance business.
It is not profit or earnings that can count in these risks since one loss in 25 to 30 years can wipe out the entire profits accumulated over a period of time. It is reinsurance that is so special to motivate insurers to venture into these kinds of businesses.
Extracts from “Guide for Reinsurance Management (IC-85)” by Dr. Rakesh Agarwal. Copyright of Sashi Publications, kolkatawww.sashipublications.com and www.bimabazaar.com
