Hi, It is given that we can measure strength of reserve by performing Gross & net of reinsurance analysis. I have not understood how this analysis will help in measuring strength of reserve? Regards, Ashok
Please can you clarify the context of your question. Are you referring to a page in the course notes or a particular exam question?
Hi Ashok The sentence is suggesting that you may wish to compare certain key accounting ratios before and after allowing for reinsurance. It is not suggesting that by comparing ratios gross and net of reinsurance you can necessarily determine the strength of a company's reserves but it may help you uncover something about the company. For example a company may look healthy net of reinsurance but on a gross basis things may not be so good. This may suggest that the company is placing too much reliance on its reinsurers and is exposed to significant reinsurance credit risk. To determine the company's strength of reserves it suggests you should compare the ratios against those of other companies and prior years.
