Insurance
Commutation Agreement — Reinsurance Settlement
Settling all past and future claims under a reinsurance treaty for a single lump sum.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Reinsurance Recoverable (Commuted) | Asset (-) | - | 500,000.00 |
| Cash (Commutation Payment Received) | Asset (+) | 480,000.00 | - |
| Loss on Commutation | Expense (+) | 20,000.00 | - |
💡 Accountant's Note
A commutation extinguishes the reinsurance relationship for a fixed payment. It provides certainty for both parties but involves accepting a discount. The difference between the recoverable and the settlement is a gain or loss.
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