Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p20
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 51055–54112

provided to users.  The gross amount of premiums earned by the cedant during the reporting period is recognised as income because it undertakes to indemnify the full amount of the specified losses of those it has insured, regardless of the reinsurance arrangements.  Correspondingly, the cedant recognises the gross amount of claims expense in the reporting period because it is obliged to meet the full cost of successful claims by those it has insured.
10.1.3 Accordingly, premium ceded to reinsurers is recognised in the statement of comprehensive income as an expense of the cedant on the basis that it is an outgoing incurred in undertaking the business of direct insurance underwriting, and is not to be netted off against premium revenue.
10.1.4 Outwards reinsurance expense is recognised in the statement of comprehensive income consistently with the recognition of reinsurance recoveries under the reinsurance contract.  For proportional reinsurance the estimate of outwards reinsurance expense is based upon the gross premium of the underlying direct insurance contract.  For non-proportional reinsurance the cedant estimates the total claims that are likely to be made under the contract and hence whether it needs to recognise additional outwards reinsurance expense under a minimum and deposit arrangement or whether it needs to recognise reinstatement premiums expense.
10.1.5 Some reinsurance contracts purchased by a cedant might involve an experience account.  Whilst these contracts may require annual renewal, in substance, the contract period is likely to be greater than one year.  In estimating the outwards reinsurance expense and reinsurance recoveries to be recognised in the reporting period the cedant considers the probability-weighted expected cash flows over the expected period of indemnity and discounts the cash flows to reflect the time value of money.  In determining the discount rates to be adopted, an insurer applies the same principles that are used to determine the discount rates for outstanding claims liabilities outlined in section 6.  In considering all expected cash flows the reinsurer considers any profit commissions and commission rebates.

11 Reinsurance Recoveries and Non-reinsurance Recoveries

11.1 Reinsurance recoveries received or receivable in relation to the outstanding claims liability and non-reinsurance recoveries received or receivable shall be recognised as income of the cedant and shall not be netted off against the claims expense or outwards reinsurance expense in the statement of comprehensive income, or the outstanding claims liability or unearned premium liability in the statement of financial position.
11.1.1 The reinsurance recoveries receivable in the statement of financial position may not be received for some time.  The reinsurance recoveries receivable are discounted on a basis consistent with the discounting of the outstanding claims liabilities outlined in section 6.
11.1.2 An insurer may also be entitled to non-reinsurance recoveries under the insurance contract