C - Freihaut and Vendetti

Question 1

FREIHAUT AND VENDETTI

4 confirmations that CEO and CFO need to make when attesting risk transfer in reinsurance transaction.

Answer 1

1) NO SEPARATE WRITTEN OR ORAL AGREEMENT.
2) There is DOCUMENTATION AVAILABLE FOR REVIEW for every reinsurance contract for which risk transfer is NOT REASONABLY SELF-EVIDENT.
3) compliance with SSAP62
4) Appropriate controls to MONITOR the use of REINSURANCE.

Question 2

FREIHAUT AND VENDETTI

Discuss PAYMENT PATTERNS as a practical consideration in risk transfer analysis.

Answer 2

Often based on past experience and industry benchmark.

When constant payment patterns are applied to a loss distribution, result will not recognize potential impact of quicker than expected payments.

This will have significant impact on tails of distribution, which is the portion of interest in risk transfer analysis.

Question 3

FREIHAUT AND VENDETTI

Discuss LOSS DISTRIBUTION as a practical consideration in risk transfer analysis.

Answer 3

Loss distribution are often based on experience, industry benchmarks, pricing info or judgment.

Having an ADEQUATE LEVEL OF COMFORT WITH THE TAIL RESULTS produced by the selected distribution is crucial.