Reinsurance Recoverables to Policyholder Surplus
It pays to know the Reinsurance Recoverables to Policyholder Surplus of the insurance company you are insured to. It is the measure of the company’s dependence on its insurers and one of the ways it is measured is by measuring how much insurance the insurance company (insurer) purchased from another insurance company (reinsurer). It also shows the potential exposure to adjustments on the reinsurance bought by the reinsured from the reinsurer. Reinsurance Recoverables to Policyholder Surplus is determined from the whole ceded reinsurance recoverables due from non-U.S. affiliates for paid losses, unpaid losses, losses incurred but not reported (or what is known as IBNR), unearned insurance premiums and commissions less funds held from reinsurers expressed as a percent of policyholder surplus.
It is better for the insured to know what the reinsurance recoverable of the company you bought insurance from to know how your insurance company is handling its losses. Basically, knowing that is necessary so that you can be sure that you would receive coverage from their reinsurers. Reinsurers that cannot handle their reinsured’s losses and similar things are likely to let the reinsured down. So, it is important for the you as the reinsured company to be assured of the reinsurer’s strength not only because it assures how your insurance company will receive coverage but also because it is important for the reinsured to not waste money on reinsurers who are not very capable of paying for the your losses using reinsurance recoveravles.
Reinsurance recoverables consist of the following components:
• Amount due for claims and related expenses paid by the ceding company (the reinsurers);
• An amount recoverable on the estimate of losses that have occurred and been reported, but have not yet been paid by the ceding company and related expenses;
• An amount recoverable on the estimate of the incurred but not reported losses, and;
• An amount equal to the portion of unearned reinsurance premiums paid to the reinsurer.
The sum of paid in capital, paid in and contributed surplus, and net earned surplus, including voluntary contingency reserves. It also is the difference between total admitted assets and total liabilities. Knowing policyholder surplus that the insured has may help in order for it to be served as a cushion during financial crisis. It proves to be very useful and can help even a little at times of need or unexpected catastrophic situations that may lead to financial aid. Keep in mind that quite a number of unexpected things can happen, and with your knowledge of the reinsurance recoverable you will be able to determine how much you could cope up with those unexpected catastrophic situations.
Upon measurement of the size of reinsurance recoverable relative to surplus, uncollectible reinsurance can really affect insurance companies’ financial strength.