T
TheArtfulDodger
Member
The 2nd Core Reading paragraph in Section 3.3 of Chapter 50 (Risk Management) reads:
"Under financial reinsurance a 'loan' is usually presented as a reinsurance commission related to the volume of business reinsured. The 'repayments' - spread over a number of years - are added to the reinsurance premiums...."
My understanding (correct me if I'm wrong here) of this type of financial reinsurance is that it provides a short-term 'boost' to the balance sheet by increasing the level of free assets. This is becuase the repayments on the 'loan' are linked to the reinsurance premiums the insurer has to pay for future periods of reinsurance cover and hence doesn't have to declare them as a liability (just yet).
Does this type of arrangement actually happen regularly in the real world? For example, wouldn't a regulator become suspicious if there was a sudden massive increase in "initial commissions" (e.g. £25m) without an increase in volume of business reinsured (& an insignificant increase in reinsurance premiums payable by the insurer)?
"Under financial reinsurance a 'loan' is usually presented as a reinsurance commission related to the volume of business reinsured. The 'repayments' - spread over a number of years - are added to the reinsurance premiums...."
My understanding (correct me if I'm wrong here) of this type of financial reinsurance is that it provides a short-term 'boost' to the balance sheet by increasing the level of free assets. This is becuase the repayments on the 'loan' are linked to the reinsurance premiums the insurer has to pay for future periods of reinsurance cover and hence doesn't have to declare them as a liability (just yet).
Does this type of arrangement actually happen regularly in the real world? For example, wouldn't a regulator become suspicious if there was a sudden massive increase in "initial commissions" (e.g. £25m) without an increase in volume of business reinsured (& an insignificant increase in reinsurance premiums payable by the insurer)?