SSAP No. 61R: Life, Deposit-Type and Accident and Health Reinsurance

Fundamental vocabulary and statutory accounting principles for life, deposit-type, and accident and health reinsurance as defined in SSAP No. 61R.

Reinsurance

An agreement by which a reporting entity transfers all or part of its risk under a contract to another reporting entity.

Ceding Entity

The entity that issued the policy; also known as the primary insurer or direct writer.

Assuming Entity

The entity to which the risk is transferred; also known as the reinsurer.

Cession

The process of transferring the risk from the ceding entity to the reinsurer.

Retrocession

The process by which an assuming entity, in turn, transfers a portion of its assumed risk to another entity. This is customarily made when the amount assumed is beyond the reinsurer’s limit of retention.

Cut-through endorsement

A specific provision that creates a direct relationship between the reinsurer or retrocessionaire and the ceding entity’s policyholder.

Retention limits

A schedule for maximum amounts of insurance established by a reporting entity that it will retain at its own risk on individual lives in various categories of insurance.

Facultative Reinsurance

A type of arrangement where each risk is handled separately at the time it is written and the assuming entity is not obligated to assume the risk until its offer is accepted.

Automatic Reinsurance

An arrangement where the ceding entity agrees to reinsure all cases meeting certain defined conditions and the reinsurance entity is bound to accept them up to a predetermined maximum.

Binding authority

The automatic maximum limit in a reinsurance agreement within which the ceding entity issues its policy without securing prior approval from the reinsurer.

Coinsurance

An arrangement where risks are reinsured on the same plan as the original policy, with the direct writer and reinsurer sharing the risk in the same manner and the reinsurer establishing required reserves.

Modified Coinsurance (modco)

A variation of coinsurance where the assets necessary to support the reserves for the original policies are maintained by the ceding entity instead of the reinsurer.

Yearly Renewable Term (YRT)

An arrangement where the ceding entity transfers the net amount at risk on the portion reinsured and pays a one-year term premium.

Net amount at risk

As defined in a Yearly Renewable Term contract, this is usually the amount of insurance provided by the policy in excess of the ceding entity’s reserve on it.

Non-proportional Reinsurance

Arrangements such as catastrophe and stop loss coverage that provide financial protection for aggregate losses rather than individual policy indemnification.

Deposit Accounting

The accounting guidance followed for reinsurance contracts covering products that do not provide for a sufficient transfer of risk or contain features that delay timely reimbursement.

Note 21 Lag

The time difference between the entry of an underlying policy transaction on the ceding entity's books and the transmittal of information to the assuming entity’s books.

Expense allowance

An amount provided by the assuming entity to the ceding entity to cover premium taxes and other general expenses, usually accounted for as part of commissions.

Experience refunds

A provision in some proportional reinsurance contracts where the reinsurer refunds an agreed-upon portion of its profit to the ceding entity.

Certified Reinsurer

An assuming insurance entity that is not an authorized reinsurer in the ceding entity's domestic state but has been certified by that state and is required to provide collateral as security.

Unauthorized Reinsurance

Reinsurance where the reinsurer is not authorized, otherwise approved, or certified to do business in the domiciliary state of the ceding entity.

Syndicated Letter of Credit

An agreement where a reinsurer works with a group of NAIC-approved "Issuing Banks" and an "Agent" bank to issue letters of credit in favor of the ceding insurer.

Interest Maintenance Reserve (IMR)

The account to which interest-related gains or losses (net of taxes) from the sale, transfer, or reinsurance of a block of liabilities must be credited or charged.

Indemnity Reinsurance

An arrangement where the ceding entity continues to be liable to the policyholders and the reinsurer has no obligations to them, with gains and losses defined as net experience within a calendar year.

Recapture or Commutation

A transaction resulting in the complete and final settlement and discharge of all present and future obligations between the parties arising out of a reinsurance agreement.

Assumption Reinsurance

The sale of a block of insurance business intended to effect a novation, thereby extinguishing the ceding entity's liability to the policyholder.

Novation

The legal result of an assumption reinsurance agreement where the ceding entity’s liability to the policyholder is extinguished.

Net policy liabilities

The collective total of assets and liabilities involved in an assumption reinsurance transaction, including policy reserves, loans, premiums, and claims.