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33- Cut Off Reins. Treaty ماهو نظام قطع العلاقه للإتفاقيه النسبيه؟ وكيف يتم تحويل المحفظه ؟ - YouTube
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We spoke in the last episode about the year of issuance system (UW Year) and its application to reinsurance accounts
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Today, we will explain the second system, which is the accounting year system
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linked to the cut-off of the proportional agreement.
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and how this system is applied to the responsibilities and obligations of reinsurers
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Unexpired risks and outstanding losses, as well as transfer of portfolio,
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Is there a difference between the unexpired risk Reserve and the premium portfolio?
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Welcome to our channel to Tameen Guru
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My name is Nadia Saleh and let us begin the episode.
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It is important to make it clear at the beginning that
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the cut-off system is not a statistical method in itself,
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but is the operation and management of the proportional agreement for reinsurance,
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which freezes the position of reinsurers every year on an accounting basis,
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and this system is suitable for annual policies,
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It is therefore applied to the fire branch.
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It means that upon the expiration of the reinsurance contract,
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the reinsurance company's liability for any in force risks
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will end even after the end of the insurance contract and
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any claim that already exists or will be reported later
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By transferring the business portfolio by returning the premium portfolio for unexpired risks
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and outstanding losses to the insurance company at the end of the insurance contract.
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The Company transfers it to other reinsurers in the accounting year following the agreement.
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It is an effective means of cash flow and affects the results of the agreement.
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So what is the meaning of a premium and claim portfolio ,
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how they are withdrawn and on what basis they are entered in a new year?
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What amendments that made in Statement of Account -SOA?
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This will be explained after the break.
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Premium portfolio transfer according to the cut-off system is ,
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the liability of old reinsurers in the agreement ends
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For all policies that are still valid at the end date of the agreement,
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and the premium portfolio or the unexpired risk Reserve shall be withdrawn at the end of the period.
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Here it is called a premium portfolio withdrawal and
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is transferred to New Year's reinsurers at the same value
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and is called Premium Portfolio Entry
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Let us see how to transfer the portfolio in the following example.
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In all examples, we will assume that the arithmetic period
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is the same as the period of the reinsurance contract
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It starts on 1/1 and ends on 31/12 of the same year
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In this example, at the end of the account year 2020,
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the premium reserve at the end of the year was formed
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or the 40% risk Reserve that we spoke about in episode 31, and the amount was 600,000
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Here we call it a premium portfolio withdrawal at the end of the year or
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in the 4th quarter 2020, it is the same as
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the portfolio entering the new year of agreement
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in the 1st quarter of 2021
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Or on 1/1/2021,
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it is considered as a credit to new reinsurers to fulfill their future liabilities
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Sometimes this is done through a separate additional statement
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for portfolio movement
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It is very important, dear viewer,
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to explain that the restrictions to withdraw and enter the portfolio
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or the financial movement of the portfolio at the end of the account year
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and the beginning of the new year to be of the same value
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so that the insurance company is not affected,
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How are reinsurers, whether old or new reins, affected by portfolio transfer upon renewal?
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Here we will have some scenarios for reinsurers
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Normally, their SOA is a debt /credit
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Do not forget that transferring the Premium and claim portfolios
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is one of the SOA items
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If Reinsurance A renews his share that will be 10% in the new year
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He receives a debt and credit notes at the same amount of $60,000,
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and therefore he will not be affected by the transfer of the portfolio in accounting terms
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The Reinsurer B and its 5% share if he withdraws
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and does not renew his share in the new agreement, he will receive a debt note
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for his share in the premium portfolio withdrawal which equivalent to $30,000,
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That is, this amount will be deducted from his statement.
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The reinsurer C is a new reinsurer in the agreement,
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He will receive a credit note Equates to his share of the premium portfolio entry which is 10%
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If one of the reinsurers continues in the new year with a different share,
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he will receive a debit & credit notes
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and the difference between them will be settled,
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The same procedure is applied to the rest of the reinsurers
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until the 100% distribution is completed for all the portfolio.
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And like what we saw in the example, dear viewer,
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we applied the unexpired risk Reserve ratio and we called a premium portfolio withdrawal
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and an entry portfolio
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OK. Does that mean that both are one or the same?
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We'll know the answer after the break
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There is a similarity between the two in terms of meaning
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The unearned premium reserve or unexpired risk Reserve is
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Extension of the reinsurers responsibility for unexpired risks at the end of the financial year
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As we explained in a previous episode
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And the premium portfolio transfer is at the end of the agreement,
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The end date of the fiscal year may be the same
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as the end date of the agreement and may be different
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But there is a difference between them in terms of purpose
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The unexpired risk Reserve aims to
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meet the responsibilities of the direct insurance company
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Thus, reinsurance on the end date of the financial year,
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whose premiums were credited to the account of two companies
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The portfolio aims to transfer the responsibilities from old reinsurance
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( Withdrawals)in the agreement to new reinsurance in the new year
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and cut off the relationship with old reinsurers
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Accounting items should therefore not be confused
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between booking and release of reserve
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From one accounting period to another period and
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between accounting items related to withdrawal and entry of the portfolio
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each is separate from the other,
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Because in a single statement , you can have a reserve for unexpired risks reserved and released,
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as well as the portfolio withdrawal and entry
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Any premiums or claim reserves withhold must be released
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upon withdrawal of the portfolio at the end of the year
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My dear ones, we have reached the end of the day episode,
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where we talked about the clean cut system
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We will complete the rest of the topic in the next episode
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And don't forget to do like, share and subscribe
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And I will see you well, God willing, bye.
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