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Fin Re - Type 1 - Asset Enhancing

J

jonbon

Member
Core reading says about it:

" There should be little to no change in Realistic accounts, except perhaps a change in the residual risk in the business"

I understand this as:

No change to Realistic accounts as Assets increased due to loan from Reinsurer but this is shown as a liability too in realistic accounts. So no change there from Asset enhancing Reinsurance.

don't understand the change in the Residual risk in the business?

anyone?
 
Hi jonbon

I think the risk point here is that in the realistic balance sheet the "value of future profits" (VIF) asset has been replaced by cash from the reinsurer. Therefore, an asset with some risk (about how much profit would materialise in future) has been replaced by a certain cash amount.

Cheers
Lynn
 
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