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🔄 '''Retrospective reinsurance''' is a form of [[Definition:Reinsurance | reinsurance]] that covers losses arising from events that have already occurred but whose ultimate cost remains uncertain at the time the contract is executed. Unlike [[Definition:Prospective reinsurance | prospective reinsurance]], which transfers risk for future events, retrospective transactions address liabilities already on the [[Definition:Cedant | cedant's]] books — typically long-tail obligations such as [[Definition:Asbestos liability | asbestos]], environmental pollution, or legacy [[Definition:Workers' compensation insurance | workers' compensation]] claims. These arrangements are sometimes referred to as "loss portfolio transfers" or "adverse development covers," depending on their precise structure, and they serve as a critical tool for insurers seeking to manage or exit legacy exposures.

⚙️ A retrospective reinsurance contract typically takes one of two main forms. In a [[Definition:Loss portfolio transfer (LPT) | loss portfolio transfer]], the cedant pays a premium to the [[Definition:Reinsurer | reinsurer]] and transfers both the [[Definition:Loss reserves | loss reserves]] and the associated future claim payment obligations, effectively moving the liabilities off its balance sheet. In an [[Definition:Adverse development cover (ADC) | adverse development cover]], the cedant retains the reserves on its books but purchases protection against the possibility that actual losses exceed currently booked estimates — the reinsurer pays only if reserves prove inadequate beyond a specified threshold. Pricing demands sophisticated [[Definition:Actuarial analysis | actuarial analysis]] of claim development patterns, and the reinsurer often receives a substantial premium that it invests over the long payout period. Regulatory treatment differs by jurisdiction: under [[Definition:US GAAP | US GAAP]], retroactive reinsurance receives distinct accounting treatment from prospective contracts, requiring gains to be deferred, while [[Definition:IFRS 17 | IFRS 17]] introduces its own measurement requirements for contracts covering past events.

💡 Retrospective reinsurance has become a cornerstone of the insurance industry's approach to [[Definition:Legacy liability | legacy liabilities]] and corporate restructuring. Carriers burdened by long-tail reserves can free up [[Definition:Regulatory capital | regulatory capital]], improve financial ratios, and sharpen their strategic focus on go-forward business by transferring or capping old-year exposures. The market for these transactions has grown substantially, with specialist reinsurers and [[Definition:Run-off company | run-off companies]] — such as Berkshire Hathaway's retroactive reinsurance operations and dedicated legacy platforms in London and Bermuda — building entire business models around absorbing and managing discontinued portfolios. For acquirers in [[Definition:Mergers and acquisitions (M&A) | M&A]] transactions, retrospective reinsurance can make a target more attractive by ring-fencing uncertain liabilities. The discipline required to price and reserve these contracts accurately also pushes the industry toward better data analytics and more rigorous [[Definition:Claims reserving | claims reserving]] practices overall.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Loss portfolio transfer (LPT)]]
* [[Definition:Adverse development cover (ADC)]]
* [[Definition:Run-off company]]
* [[Definition:Reinsurance]]
* [[Definition:Loss reserves]]
* [[Definition:Cedant]]
{{Div col end}}

Definition:Retrospective reinsurance - Revision history

PlumBot: Bot: Creating new article from JSON