Actuarial Notes

Property and Casualty Reinsurance

By National Association of Insurance Commissioners · 2025 · SSAP No. 62R

Study guide: Exam 6U

Statement of Statutory Accounting Principles No. 62R of the NAIC's Accounting Practices and Procedures Manual. It establishes statutory accounting principles for property and casualty reinsurance, dealing with the more commonly employed methods of structuring reinsurance arrangements, including the required terms of agreements, risk transfer, prospective and retroactive accounting, deposit accounting, provisions for unauthorized reinsurance and commutations.

On the syllabus

  • Exam 6U — objectives C1–C2, D2–D3 and D5; NAIC Accounting Practices and Procedures Manual, 2025, SSAP No. 62R, paragraphs 1-111, available in Appendix IV of the COPLFR P&C Practice Note (as the content outline states it)

Scope of Statement

  • The statement establishes statutory accounting principles for property and casualty reinsurance and deals with the more commonly employed methods, since a wide range of methods can be used to structure reinsurance arrangements.

Summary Conclusion

  • General
    • Reinsurance is the assumption by an insurer of all or part of a risk undertaken originally by another insurer; ceding all or part of assumed reinsurance to another reinsurer is a retrocession.
    • Reinsurance agreements are classified as treaty or facultative, and coverage is pro rata (quota share, surplus share) or excess of loss (excess per risk, aggregate, catastrophe).
  • Characteristics of Reinsurance Agreements
    • Common provisions that affect accounting include reporting responsibility, payment terms, payment of premium taxes, termination on a cut-off or run-off basis, and the insolvency clause.
  • Required Terms for Reinsurance Agreements
    • No credit is allowed for reinsurance recoverable unless the agreement has an acceptable insolvency clause, makes recoveries available without delay, is the entire contract with no guarantee of profit, provides for reports and payments at least quarterly, and meets the conditions on intermediaries, certified reinsurers and retroactive agreements.
  • Reinsurance Agreements with Multiple Cedents
    • Agreements with multiple cedents require a written allocation agreement whose terms are fair and equitable.
  • Reinsurance Contracts Must Include Transfer of Risk
    • The essential ingredient of a reinsurance contract is the transfer of risk; unless the agreement contains it, no credit is recorded.
    • Indemnification requires both that the reinsurer assumes significant insurance risk under the reinsured portions of the underlying agreements and that it is reasonably possible the reinsurer may realize a significant loss from the transaction; the two conditions are independent.
    • Insurance risk involves uncertainty about both the amount of net cash flows (underwriting risk) and their timing (timing risk); investment returns are not an element of insurance risk.
  • Accounting for Reinsurance
    • Reinsurance recoverables are recognized consistently with the liabilities, including incurred but not reported amounts, for the underlying reinsured contracts.
  • Accounting for Prospective Reinsurance Agreements
    • Amounts paid for prospective reinsurance that meets the conditions for reinsurance accounting reduce written and earned premiums and are earned over the remaining contract period in proportion to the protection provided.
  • Accounting for Retroactive Reinsurance Agreements
    • Retroactive agreements cover liabilities that occurred before the agreement's effective date and receive special accounting treatment because of potential abuses involving the creation of surplus and the distortion of underwriting results.
  • Deposit Accounting
    • To the extent an agreement does not transfer both components of insurance risk, all or part of it is accounted for and reported as a deposit.
  • Assumed Reinsurance
  • Ceded Reinsurance
  • Adjustable Features/Retrospective Rating
    • Treaties may adjust commission, premium or the amount of coverage based on loss experience.
  • Multiple-Year Retrospectively-Rated Contracts
  • Multiple-Year Retrospectively-Rated Contracts by Ceding and Assuming Entities
  • Obligatory Retrospective Rating Provisions
  • Allocation of Certain Payments Between Coverage and Past Losses
  • Contractual Termination Features
  • Impairment
  • Commissions
  • Unauthorized Reinsurance
    • Reinsurance with an assuming reinsurer not authorized, otherwise approved or certified in the ceding entity's domiciliary state is unauthorized, and a provision offsets the credit taken for it.
  • Reinsurance Ceded to a Certified Reinsurer
  • Funds Held Under Reinsurance Treaties
  • Provision for Reinsurance
  • Asbestos and Pollution Contracts – Counterparty Reporting Exception
  • Syndicated Letters of Credit
  • Disputed Items
  • Uncollectible Reinsurance
  • Commutations
    • A commutation is a transaction resulting in the complete and final settlement and discharge of all, or the commuted portion, of present and future obligations between the parties under the reinsurance agreement.
  • National Flood Insurance Program
  • Accounting for the Transfer of Property and Casualty Run-Off Agreements
  • Disclosures
  • Relevant Literature
  • Effective Date and Transition

References

  • Relevant Issue Papers

Classifying Reinsurance Contracts

Exhibit A Implementation Questions and Answers

Exhibit B P&C Runoff Reinsurance Transactions

Exhibit C Illustration of a Reinsurance Contract That Is Accounted for as a Deposit Using the Interest Method

Exhibit D Illustration of Asbestos and Pollution Counterparty Reporting Exception

Supplemental Schedule for Reinsurance Counterparty Reporting Exception – Asbestos and Pollution Contracts

Related readings

  • Statements of Actuarial Opinion on Property and Casualty Loss Reserves Practice Note (COPLFR - 2024) — its Appendix IV reproduces this statement, as the content outline notes

Sources

  • Property and Casualty Practice Note 2025 (American Academy of Actuaries, COPLFR) — the text of SSAP No. 62R as reproduced in its Appendix IV (pp. 62-1 to 62-50, marked © 1999-2025 NAIC): status table, contents, section headings and the opening paragraphs of the sections summarized above (348 pages, sha256 299cb328818f8669014180a0e1c8543121996b2f9c94f83ea0d8f131d3afe4c3); sections listed by heading only were not summarized, and the NAIC's own Accounting Practices and Procedures Manual is sold by the NAIC and was not read
  • CAS Exam 6U Content Outline, Fall 2026 — the citation (Accounting Practices and Procedures Manual, 2025), the assigned paragraphs and the note that the material is in Appendix IV of the COPLFR practice note