Reinsurance Accounting, Claims and Monitoring
IC-81 tests the money and claims cycle between cedant and reinsurer. Reinsurance accounts convert treaty shares into premium, commission, loss recoveries and balances, while monitoring tests whether the programme still fits the portfolio.
Core rules
- Ceded premium is the reinsurer's share of original premium; quota share and surplus commissions are usually calculated on ceded premium.
- Deposit premium is provisional and is adjusted after the treaty period, often using a minimum and deposit premium or adjustable rate.
- Cash loss clauses allow quick recovery for large losses before final adjustment.
- Profit commission returns an agreed share of treaty profit after allowing for losses, expenses and commission.
- Claims handling requires prompt notification, proof of loss, cooperation, salvage and subrogation protection, and recovery collection.
- Monitoring uses ceded loss ratio, net retention, treaty exhaustion, reinsurer security and outstanding recoveries.
Worked example
A 50% quota share produces gross premium of INR 20 lakh. Ceded premium is INR 10 lakh. The treaty gives 30% commission, so the reinsurer receives INR 3 lakh commission and retains INR 7 lakh after commission. If the reinsurer's share of losses is INR 4 lakh, its net result before expenses is INR 3 lakh profit. A 20% profit commission on that profit would be INR 0.6 lakh, subject to the treaty's profit definition and any carried-forward loss.
Traps
Do not calculate commission on gross premium when the treaty says ceded premium. Do not treat deposit premium as final. Do not ignore cash loss, reinstatement premium or outstanding loss reserves. Do not monitor only premium volume while missing rising ceded loss ratios.