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#1
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![]() Pretty basic question here:
If you have a long duration life policy, and a long duration reinsurance contract on that policy, but the reinsurance is for less time than the duration of the policy, what's the period of amortization of the Net Cost of Reinsurance Asset/Liability? Thanks! |
#2
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![]() If the reinsurance is definitely long duration, then a strict reading of FAS 113 would say to amortize over the life of the underlying contracts
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#3
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![]() Quote:
it also seemingly is not intuitive because you'd then be amortizing the reinsurance contract beyond the reinsurance contract. anyone have industry knowledge / practical experience? |
#4
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![]() Yeah I would talk to someone in your accounting area that either has auditor knowledge or could point you to an auditor. You might also talk to the reinsurer. I would try to get an auditor's opinion/blessing before making any educated guesses that aren't clearly supported by the accounting standards.
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#5
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![]() FY commissions are amortized over the entire period, not just the FY. I don't see why a net cost of reinsurance asset/liability would be any different. It should be amortized over the entire period, not just the period of reinsurance. It's not being amortized using the reinsurance premium. A reinsurer is going to have a different answer than a ceding company. Their time period is only the duration of the reinsurance, not the entire contract. Eddie is right. An auditor isn't going to tell you how to do it, you tell the auditor what you're going to do, you get their blessing, and you do it.
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#6
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![]() Good points by Ranger -- especially with respect to timing. Just because the reinsurance ends before the underlying contract, it would still be in the "spirit" of long duration GAAP accounting to spread the effect of reinsurance over the life of the contracts. Just like with acquisition costs, unearned revenues, and other uneven cash flows, GAAP methods are often designed to spread those lumpy items over the life of the contracts (or some long-term proxy like 30 years).
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