In broad terms, an account can be broken down into of three

main sections:
- it provides a technical overview, i.e., it summarizes all
items that contribute to the underwriting profit or loss, such
as premiums, losses, commissions and other deductions;

- it gives a financial picture, i.e., it summarizes all items
that affect the amounts due to or from the parties. In
addition to the technical picture which gives the
underwriting result such items as deposits withheld and
released and interest and tax on interest are included;

- it summarizes the settlement picture, i.e., includes
balances due from current and previous accounts and cash
movements.


The accounting procedures are different for proportional
and non-proportional treaties because of the differences in
their nature.
Accounts are issued at regular intervals and these
intervals are stated in the contract. For proportional
treaties, quarterly accounts tend to be the norm but half-
yearly accounts are not unusual.
From a reinsurers perspective, quarterly accounts are
preferred because cash flow is better than with half-yearly
accounts.

The accounting chain

The accounting procedures follow a pattern where various
forms have to be prepared at regular intervals and where
information has to be transmitted to reinsurers within a
period stipulated in the reinsurance contract.
It is essential that an administrative routine is developed
whereby all the steps in the chain are followed. The steps
are linked to each other in such a way that a delay in one
part will lead to a delay of the whole process.


The Accounting Chain

Reinsurers monitor their ceding companies accounting
and payment practice. If acceptable accounting and
settlement standards were not maintained, many
reinsurers would decline a continued participation in the
business even if it were technically profitable.

REINSURANCE ACCOUNTING
Proportional business
With proportional treaties, many individual policies or risks are covered by
reinsurers and this necessitates the transfer of a share of the premiums under
each risk ceded and the collection of the corresponding part of any loss arising
on the same risk. Thus the ceding company will be obliged to maintain records
of all cessions made to the treaty.

This record is referred to as a:
- premium bordereau. A premium bordereau is sometimes provided to the
leading reinsurer.
In a similar way a:
- claims bordereau - records each claim to be recovered from the reinsurance
treaty.

The reinsurance treaty would also stipulate that a:
- loss notification is provided to reinsurers if a loss exceeds or is expected to
exceed an amount specified in the treaty.

REINSURANCE ACCOUNTING
At regular intervals, a:
- treaty account will be dispatched to all
reinsurers. As previously stated, the account will
contain technical and financial items and forms a
statement of amounts due to or from the reinsurer.

Upon receipt of the account and within a
stipulated time period, reinsurers will:
- confirm the account.

REINSURANCE ACCOUNTING
Following the confirmation:
- payment of amounts due will take place.

In addition to the flat treaty commission, the
reinsured may be entitled to a profit commission as an
incentive to promote good underwriting. Thus, should
the treaty earn a profit based on an agreed formula,
reinsurers are charged an additional commission. The
profit commission is calculated and charged in a
profit commission statement that is usually prepared
annually when the year-end result is known.