If the reserve was based on risk margin, what must be disclosed?

• A. The rate used and the amount of the discount
• B. The risk margin rate and the amount of the risk margin
• C. The investment policy
• D. The reinsurance treaty details

Answer: (D)

When reserves are based on risk margin, the key idea is that the reserve includes an allowance for uncertainty in future cash flows. The most important disclosure to provide recognizes how that risk is being transferred or mitigated through reinsurance. Reinsurance treaties directly affect the insurer’s risk exposure, including terms, coverage, limits, retentions, and counterparty credit risk, which in turn influence the size and reliability of the risk margin. Therefore, sharing the details of reinsurance arrangements gives users the information needed to assess how much risk remains and how the margin is determined. Other items like the specific discount rate or the standalone amount of the risk margin describe parts of the calculation but do not by themselves reveal the risk transfer structure driving the margin, while investment policy is not the central issue for understanding the reserve’s risk margin disclosure.