In retroactive reinsurance, losses are excluded from the existing reserves.

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In retroactive reinsurance, losses are excluded from the existing reserves.

In retroactive reinsurance, the reinsurer takes on losses that have already occurred. Because those specific liabilities are now the reinsurer’s responsibility, the ceding company removes those past-claims liabilities from its reserve balances. So the losses are excluded from the existing reserves. This differs from adding to reserves (which would imply the company still owes those losses), or recording them as revenue (revenue comes from premiums earned, not from past losses), or simply recognizing a generic asset (the primary effect is the derecognition of the related reserves, though there may be related accounting for recoveries).

In retroactive reinsurance, the reinsurer takes on losses that have already occurred. Because those specific liabilities are now the reinsurer’s responsibility, the ceding company removes those past-claims liabilities from its reserve balances. So the losses are excluded from the existing reserves.

This differs from adding to reserves (which would imply the company still owes those losses), or recording them as revenue (revenue comes from premiums earned, not from past losses), or simply recognizing a generic asset (the primary effect is the derecognition of the related reserves, though there may be related accounting for recoveries).

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