Portfolio Entry: What It Is, How It Works

What Is a Portfolio Entry?

A portfolio entry documents all of the liabilities that a reinsurer is responsible for due to treaty reinsurance. It accounts for unearned premiums from policies that are inactive during an accounting period, as well as unearned premiums that carry over into a future accounting period.

Understanding Portfolio Entries

A portfolio entry represents an insurance policy that an insurance company transfers to a reinsurance company in an effort to reduce the risks associated with policies and the capital required to manage them.

An insurance company continuously underwrites policies over the course of the year. At any given time, it will have a portfolio of policies with different expiration dates. At the end of a reporting period—such as a fiscal year—the insurer details the various amounts of both, earned premiums and unearned premiums.

Earned premiums are associated with policies that have ended. Unearned premiums, considered liabilities, represent premiums collected on active insurance policies. Active policies are a liability for the insurance company because the policyholder could still file a claim before the expiration of the policy contract.

Reinsurance Companies and Portfolio Entries

Treaty reinsurance allows an insurance company to transfer, or cede, some of its underwriting liabilities—and risk—to a reinsurance company. In exchange, the reinsurer receives a portion of the premiums that the insurer collects. For every policy ceded by the insurance company to the reinsurer, a portfolio entry is created.

Ceded items may include claims that have yet to be paid, new policies ceded by the insurer, and reinsurance renewals. Thus, the portfolio entry represents an account of the reinsurer’s premium portfolio, loss portfolio, and investment portfolio. 

A reinsurer provides financial protection to an insurance company by assuming some of the latter's financial risk. Reinsurers take on risks that are too large for insurance companies to handle on their own. In this way, they make it possible for insurers to obtain more business than they would otherwise be able to manage.

Spreading Out Risk

The reinsurance company assumes existing obligations and the risks associated with the insurer’s loss reserves and unearned premiums.

As with insurance contracts, treaty reinsurance has fixed time frames. So, accounting for portfolio entries is a critical part of understanding a reinsurer’s own risk exposure.

Reinsurance Portfolios

An insurer must list the value of unearned premiums associated with unexpired policies at the end of a reporting period. A reinsurer must also account for unearned premiums and evaluate its exposure to unearned premiums in an accounting year.

When a reinsurance company receives premiums from the ceding company, it deposits them in an unearned premium reserve account. The account is used to pay for future claims.

As time passes, a portion of the premiums is removed from the unearned premium reserve and marked as earned. The earned premiums represent the reinsurer’s profit.

When a treaty reinsurance contract expires or is canceled, the reinsurer can shift liabilities back to the ceding company by paying them for any premiums it collected but remain unearned.

The Bottom Line

A portfolio entry is the record made of an insurance policy and its liabilities when transferred from insurer to reinsurer. Portfolio entries assist both insurers and reinsurers in understanding their risk exposure that's related to underwritten policies.