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Old 03-03-2014, 07:37 AM
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MountainHawk MountainHawk is offline
Join Date: Dec 2001
Location: Salem, MA
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College: Lehigh University Alum
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As stated, the reserve the carrier is going to carry is net, so they have to know how much to take off hte gross reserve to be able to book the reinsurance credit. The financial statements show both set of values.

If you have basic quota share reinsurance, it's pretty easy. You just take x% of your reserve and call it ceded. However, what if you have per risk excess of loss? Well, let's say the reinsurer covers the loss layer from $3M to $10M per occurrence. You can do a gross analysis with all losses included), a second analysis where all losses are capped at $3M (which means there will be less development), and a third analysis with all losses capped at $10M (assuming this is different that the gross review).

The reserves ceded to the reinsurer are then the difference between the reserves capped at $10M and the reserves capped at $3M, and the net reserve is (Reserve_Gross - (Reserve_10 - Reserve_3)).

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