modified coinsurance

  • The plan is the same as the coinsurance plan, except the ceding company retains the assets with respect to all the policies reinsured and also establishes and retains the total reserves on the policies: the assuming company (reinsurer) is paid the gross investment income on the assets retained by the ceding company. Under this arrangement, periodic settlements are made between the two companies for premiums collected and for death benefits, surrenders, dividends, etc., at the end of the year, and the reinsurer is charged by the ceding company for its proportionate part of the increase in reserves on the reinsured policies. This modification removes one of the major disadvantages of strict coinsurance in that the original insurer’s assets are not diminished.

    Internal Revenue Service 1

1Internal Revenue Service, Internal Revenue Manual 4.42.6 Glossary, http://­www.irs.gov/­irm/­part4/­irm_04-042-006.html (last accessed Dec. 22, 2009).