The Reserve for Unrecoverable Reinsurance

The estimation of reserves, established by the ceding company, for known and potential reinsures in liquidation requires a digest of reinsurance placements, a ceded claim data capture capability, an accounting of known ceded claims and the corresponding accounts receivable, methods for evaluating the expected ultimate liability in the ceded layers (including development of known direct claims and IBNR claims), and an evaluation of potential creditor recovery of funds upon distribution of reinsures’ assets. This paper primarily describes methods for evaluating the expected ultimate liability for unrecoverable reinsurance, and we discuss several issues and considerations regarding these methods and the evaluation process in total. In order to put the calculation methods in perspective, we provide a description of financial reporting and data capture of ceded losses and a discussion of issues regarding these topics. The methods for calculating the reserve for uncollectible reinsurance are also appropriate for estimating the liabilities for commutations and innovation agreements. Reinsurance Research - Reserving