Chapter 29 - 30 - Reinsurance

Question 1

General factors to take into account when setting the retention limit?

Answer 1

F FREE RATES

Free assets level and importance attached to stability of free asset ratio

Familiarity of the company with underwriting type of business involved
Risk appetite of company (insurance risk)
Expected distribution of benefit amounts
Existence of a profit-sharing arrangement in the reinsurance treaty

Retention limit on other products
Average benefit level for the product
Terms on which reinsurance can be obtained and the dependence of such terms on the retention limit
Effect on the regulatory capital requirements of increasing or reducing the retention limits
Sum assureds - the nature of any future increases in sums assureds

(Adapted from F102 June 2018 Q2, feel free to adjust if you can think of a list that’s easy to memorise).

Question 2

Reasons for reinsuring

Answer 2

FLIRTIN(G) LIPS

Financial assistance (i.e. raise capital - FinRe)
Limit amount paid on particular claim 

Increase capacity to write new business/ take on larger risks
Reduce capital requirements 
Technical assistance 
Insurance parameter risk (reduce)
New business strain (reduce) 

Limit total claim payout (XL)
Increase profit, return or risk-adjusted return on capital
Payout fluctuation (reduce)
Separate out different risks from a product