Conifer Holdings, Inc. has signed a new negative reinsurance reinsurance contract with global reinsurer Swiss Re for reserve reinsurance and has implemented a few other strategic initiatives to strengthen its financial position. The agreement with Swiss Re will enter into force on 28 September 2017 and will offer Conifer up to $17.5 million… Read the full article What is a fair royalty for negative development coverage between 1.25B and 1.5B based on this projection of future liabilities? The finished risk reinsurance recently made headlines following investigations into accounting practices in the insurance industry. Reinsurance is insurance for insurance companies, a way to spread the risk that insurance companies take when writing home, auto and commercial insurance. To be considered reinsurance for accounting purposes, a reinsurance contract must include a certain transfer of risk to the reinsurer. In the event of insufficient risk transfer, the transaction is considered a financing mechanism and is counted as a loan or liability instead of an asset. Negative development coverage offers a wider range of coverage than LPTs, as they generally include unreported losses (IBNRs), losses that were only filed with the insurer (re), years after the sale of the policy. In this type of coverage, the insured does not retain the risk of the acquired but unreported rights for which he is responsible, but passes it on to the insurer (return). Unlike LPTs, there is no transfer of receivables reserves.

Instead, the policyholder pays a premium for the transfer of losses above the level at which reserves have already been built, i.e. the evolution of negative losses. This type of coverage can be regulated either by a stop-loss contract that protects the ceding from losses of a total amount, or by an employment contract or disaster surplus. The reinsurance contract work team is the first above the insurer`s retention, where the losses are likely to be the largest. The main advantage of negative development hedges is that they facilitate mergers and acquisitions, as the insured company can offload both the timing and the risk of developing reserves. The takeover entity can evaluate the target entity without actuarial diligence. Negative coverage of developments improves the views of analysts and rating agencies on the acquisition, as it reduces the potential volatility of financial results. For spread loss coverage, the insurer pays annual premiums or a one-time premium to the reinsurer to cover certain losses.

These premiums – minus a margin on expenses, capital costs and profits – are credited to an „experience account“ to finance potential losses. The funds get a contractual investment return. The balance of the experience account is settled with the client at the end of the term of the multi-year contract. The reinsurer limits payments for each year and/or for the duration of the contract. The reinsurer is exposed to the insurer`s credit risk, to the possibility that it will not cover its financial obligations if the balance on the experience account becomes negative. Generally, these types of contracts present a very limited insurance risk, but offer the insurer the benefits of the reinsurer`s liquidity and financial security. The reinsurer assumes the credit risk (conditional) of pre-financing losses. The amount of the risk transfer is often small, but it must meet the requirements for the agreement to be classified as a reinsurance contract.