According to the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued Enterprise Accounting Standard No. 26 — Reinsurance Contracts on 2006/2/15, effective as of 2007/1/1. This standard was superseded by the revised Insurance Contract Standard in 2020.
1. Overview of Guidelines
This standard prescribes the recognition, measurement, and disclosure of reinsurance contracts. Reinsurance is an arrangement whereby an insurer transfers part of its insurance business to another insurer.
Types of Reinsurance
- • Cession of Business: The transfer of insurance business assumed by a reinsurer to another insurer.
- • Ceded Business: Insurance business accepted by a reinsurer from another insurer.
II. Accounting Treatment for Business Divestitures
Reinsurance premium
The ceding insurer shall, in the period when it recognizes premium revenue from the original insurance contract, calculate and determine the reinsurance premium ceded in accordance with the relevant reinsurance contract agreements and recognize it in current earnings.
Reinsurance recoveries
The ceding insurer shall, in the period when premiums revenue from the original insurance contract is recognized, calculate and determine the reinsurance costs recoverable from the reinsurer in accordance with the relevant reinsurance contract agreements, and recognize them as current period profit or loss.
III. Accounting Treatment for Reinsurance Assumed
Retrocession Premium Income
- • Reinsurers shall recognize ceded premium income in the amount stated on the reinsurance account bill upon receipt.
- • Reinsurers shall calculate and determine reinsurance fees based on the amounts stated in cession bills and recognize them in current period earnings.
- • Reinsurance acceptors shall confirm ceded loss payments upon receipt of claim notifications.
4. Presentation
Assets and liabilities arising from reinsurance contracts shall not be offset against those arising from the related underlying insurance contracts.
Line-item reporting
- • The income statement shall separately disclose: premiums ceded, recoveries of reinsurance expenses, and recoveries of claims paid.
- • The balance sheet shall separately present: receivables from ceding insurers, unearned premium reserves from ceding insurers, and payables to ceding insurers.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 26 — Reinsurance Contracts (2006) (PDF)