Ch29: Reinsurance

Question 1

Factors the reinsurer will consider when deciding how much reinsurance commission to offer

Answer 1

• the profit it expects to make from the business
• the risks it’s taking on
• how much it wants to obtain the business

Question 2

Coinsurance using level risk premium approach

Answer 2

The reinsurer sets a level premium for its share of the risk based on its share of the total sum assured.
The insurer then calculates its own premium rates in the knowledge of the reinsurance premiums it will be paying.
The reinsurance commission is usually not significant

Question 3

Risk premium financial reinsurance

Answer 3

The reinsurer sets the reinsurance premium rate. This reinsurance premium rate acts as a recurring single premium, with each premium covering the immediate period of risk. The reinsurer may cover a part of the full sum assured or just part of the sum at risk. The risk premium will vary from period to period due to changes in the sum at risk, age of the policyholder, or rate reviews. The reinsurance commission is usually not significant.

Question 4

Two types of financial reinsurance

Answer 4

• increased reinsurance premium, higher reinsurance commission
• contingent loan

Question 5

Risk premium financial reinsurance

Answer 5

Loan presented as a reinsurance commission related to the volume of business reinsured. The “repayments” are added to the reinsurance premiums. The reinsurer takes into account the expected lapse experience of the portfolio of reinsurance in determining loan repayments