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

SSAP No. 61R establishes statutory accounting principles for life, deposit-type, and accident and health reinsurance.
Indemnity Reinsurance: An agreement where a ceding entity (reporting entity) transfers all or part of its risk to a reinsurer (assuming entity).
Cession and Retrocession: The process of transferring risk to a reinsurer is a cession; a subsequent transfer of that risk by the reinsurer is a retrocession.
Direct Relationship: No direct relationship exists between the reinsurer and the policyholder unless a cut-through endorsement is present.
Insolvency: In the event of a ceding entity's insolvency, policyholders or beneficiaries maintain the same status as those without reinsurance, except where a cut-through endorsement exists.

Retention Limits: Reporting entities establish schedules for maximum amounts of insurance to retain at their own risk on individual lives to eliminate exposure to large losses and reduce fluctuations in claim costs.
Strategic Decision: When risks exceed retention limits, entities must either accept and reinsure the additional risk or decline it.
Aggregate Stop Loss: Reinsurance used to protect an entity from aggregate claims exceeding a specific threshold.
Surplus Strain Management: Reinsurance may be used to transfer surplus strain resulting from writing new life insurance or to limit risk on substandard business.

Facultative Reinsurance: Each risk is handled and negotiated separately at the time it is written. The assuming entity is not obligated to assume risk until its offer is accepted.
Automatic Reinsurance: The ceding entity agrees to reinsure all cases meeting defined conditions up to a predetermined maximum (binding authority). The reinsurer is bound to accept these cases based on the ceding entity's underwriting judgment.
Yearly Renewable Term (YRT): The ceding entity transfers the net amount at risk (policy amount in excess of the reserve) and pays a one-year term premium.

Coinsurance: Risks are reinsured on the same plan as the original policy. The ceding entity and reinsurer share risks, premiums, and benefits (including dividends and nonforfeiture values) proportionally. The reinsurer establishes required reserves for the assumed portion.
Modified Coinsurance (Modco): Net policy liabilities are transferred to the reinsurer, but the ceding entity maintains the assets supporting the reserves. The assuming entity transfers the increase in reserve back to the ceding entity.
Non-Proportional Reinsurance: Includes catastrophe and stop loss coverage, providing financial protection for aggregate losses rather than individual policy indemnification. These are typically written on an annual basis without a requirement for renewal.

Risk Transfer Requirement: Agreements must transfer significant risk to receive reinsurance accounting treatment.
Deposit Accounting: If an agreement fails to meet risk transfer criteria (e.g., contains features that delay timely reimbursement), it must follow Deposit Accounting guidance.
Non-Proportional Evaluation: Terms are evaluated to assess if they transfer significant risk; payment must depend on and vary directly with the amount and timing of claims.

Ceding Entity Reporting: Credits (deductions) are taken for policy and claim reserves, unpaid claims, and modified coinsurance reserves. It also reports amounts recoverable on claims and expenses.
Assuming Entity Reporting: Reports reserves for assumed reinsurance (reduced by modco reserves), premiums receivable, and amounts payable for claims and expenses.
Separate Classification: Premiums, commissions, and reserves must be reported separately on the balance sheet; each agreement is accounted for individually.
Uncollectible Reinsurance: If recoverables are probably uncollectible per SSAP No. 5R, they must be written off through the Statement of Operations.

Certified Reinsurers: Assuming entities certified by a state to provide collateral based on an assigned rating.
Rating Changes: Upgrades in ratings apply prospectively ( $3$ -month grace period allowed). Downgrades apply retroactively, requiring revised collateral for all obligations.
Unauthorized Reinsurers: Reinsurance with entities not licensed or approved. To take reserve credits, the ceding entity must hold securities, cash, or letters of credit equal to the credit taken.
Syndicated Letters of Credit: Reduction in liability is permitted if banks are qualified, meet NAIC SVO criteria, and are severally (not jointly) liable.

Indemnity Reinsurance: The ceding entity remains liable to policyholders. Gains and losses are defined as the net experience within a calendar year and are generally recognized immediately.
Assumption Reinsurance: Intended as a novation, extinguishing the ceding entity's liability. The reinsurer issues assumption certificates and takes responsibility for policyholder services.
Financial Impact of Assumption:
- Difference between assets and liabilities if liabilities exceed assets is goodwill, amortized over the life of policies (not to exceed $10$ years).
- If assets exceed liabilities, the difference is recorded as a deferred liability and amortized (not to exceed $10$ years).