Two completions in one claim
A claims payment can complete an urgent obligation to a policyholder while leaving a significant financial task unfinished. If part of that payment is recoverable under a reinsurance arrangement, the insurer may still need to assemble evidence, resolve a contractual question or complete the counterparty's settlement process. The recognised receivable and the available cash occupy different stages of the same economic story. I think an insurance CFO should make those stages visible, particularly when a reassuring recovery total enters a discussion about the next month's liquidity.
At Yorihama Assurance, we reviewed an opening cohort of JPY4.6 billion in overdue reinsurance receivables. It was tempting to approach the exercise as an instruction to collect faster. But a general instruction did not identify which items needed a missing document, which required a specialist interpretation and which were waiting in an agreed payment process. Sending more reminders could increase activity without changing any of those conditions. The financial account needed a practical description of the obstacle before the executive team could decide what resources or intervention would be useful.
I began by fixing the cohort we would follow. New receivables continued to arise, but they were tracked separately from the opening balance. Without that discipline, a lower overall ageing total could conceal a mixture of collections, write-offs, new items and classification changes. The team needed to be able to explain the movement rather than celebrate a smaller number. In the reported cohort, JPY3.3 billion was collected over fourteen months and JPY1.3 billion remained outstanding. The stated reduction contained no write-offs or offsets; it represented cash received against the existing asset.
That definition also prevented a misleading earnings claim. We had not written JPY3.3 billion of new premium or generated that amount of fresh underwriting profit. We had collected receivables already recognised. There could be other accounting consequences associated with a recovery's history, but those belonged in their own explanation. I wanted the collection result to stand on its actual merit: cash had become available, a defined outstanding cohort had reduced and the remaining work could be examined. It did not need an invented growth narrative to be worth doing.
An ageing number needs a reason
The review combined finance, claims and reinsurance colleagues, with legal expertise where required. For each material item, we recorded the reason for delay, the team responsible for the next action and the event expected to move the position forward. A date alone was insufficient. If payment depended on a missing loss document, the important question concerned who could obtain it and whether the request was clear. If the issue concerned interpretation, a clerical chase would not substitute for the appropriate specialist discussion with the counterparty.
This work cost JPY72 million over the fourteen-month period, including temporary document support and specialist review. That expense was easy to challenge because collecting an existing receivable can sound like work the organisation should already have completed. I agreed with the criticism of the original delay, but it did not remove the practical task before us. We could improve the process for future items and still fund the effort needed to resolve the existing cohort. Refusing the latter because the former should have been better would not have made cash arrive sooner.
We prioritised by materiality and the action available, while keeping the residual population visible. A large balance with an unresolved contractual issue could need sustained senior attention without promising an immediate receipt. Several smaller items sharing one missing reference could be progressed together. This made the allocation of effort more useful than a uniform instruction to clear everything older than a chosen number of days. It also respected the different skills involved. A finance colleague could organise the account without assuming authority to settle a legal or coverage question.
The exercise revealed the value of recording the reason for delay early. We spent avoidable time reconstructing correspondence that had moved between teams. The original note sometimes described a file as pending without saying what was pending or who could resolve it. I would now ask for the next event to be recorded as soon as an item becomes overdue. A clear account of uncertainty is more useful than a confident expected date unsupported by the work required to reach it. It gives the following reviewer something concrete to test.
Do not make the policyholder wait for the recovery
The insurer's obligation to its policyholder and its recovery process cannot be treated as one operational queue. Our review did not instruct claims colleagues to defer appropriate policyholder payments until reinsurance cash arrived. That would have confused two relationships and used a collection problem to reshape another party's experience. Finance instead needed to understand the potential timing gap and reflect it in liquidity planning. The reinsurance arrangement could remain valuable while the company still needed resources to make payments before related recoveries were received.
This is why I want a cash forecast to distinguish a recognised balance from a dated receipt assumption. Some amounts may have an agreed settlement date; others depend on work still under way. The forecast should show the basis of those assumptions and how the company would respond if a material receipt moved. It should not take a total asset from the balance sheet and distribute it conveniently across the weeks needed to make a plan balance. Accounting recognition and cash planning should inform each other without pretending they answer the same question.
For directors, I would present the opening cohort, collections, remaining amount and reasons for the most material delays. I would also show the cost of the work and the continuing exposure to timing differences. That gives the board a basis for asking whether management has the right capability and whether the account is becoming more useful. The board does not need to manage every recovery file. It does need to understand whether a favourable total conceals a concentration of unresolved items whose cash availability depends on the same difficult event.
Our JPY1.3 billion remainder was part of the result, not an embarrassing footnote to be removed from a success story. Some items required further review and some assumptions would change. I consider that residual account a better foundation for the next period than a claim that the problem had been solved. Insurance finance often concerns the distance between a promise, its recognition and its eventual settlement. Following that distance carefully is less dramatic than announcing new business, but it can be just as consequential to the institution's ability to honour what it has already accepted.