The asset classification of funds held by or deposited with reinsured companies occurs when:

Question

Options

• Athe reporting entity has assumed insurance from only one insurer that owes it funds, according to
• Bthe reporting entity has assumed reinsurance from one or more other insurers that owe it funds,
• Cthe reporting entity has assumed reinsurance necessarily from more then one insurers that owe it
• Dthe reporting entity has assumed authority from one or more other insurers that owe it funds,

• A
  16% (5)
• B
  71% (22)
• C
  3% (1)
• D
  10% (3)

Explanation

Option B is correct because the asset classification "funds held by or deposited with reinsured companies" applies precisely when the reporting entity acts as a reinsurer - meaning it has assumed reinsurance from one or more other insurers (the ceding companies) that owe it funds. Both the correct relationship (assumed reinsurance) and the correct scope (one or more insurers) must be present.

Why the distractors fail:

• A is wrong because it artificially restricts the classification to only one insurer - the rule applies regardless of how many cedents are involved.
• C is wrong because it swings to the opposite extreme, requiring more than one insurer - again, the classification applies whether there is one or several.
• D is wrong because "assumed authority" is not a reinsurance concept; the operative term is "assumed reinsurance," which is the contractual relationship that triggers this asset category.

Memory tip: Think of the asset name itself - "funds held by reinsured companies." The word reinsured tells you the reporting entity is the reinsurer (the one that assumed risk), and the funds are owed by the cedents. If you assumed reinsurance, you're the reinsurer - and that's exactly when this classification kicks in, for one cedent or many.

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