CIA. Reins

Question 1

list the 4 key principles of risk transfer assessment

Answer 1

• use quantitative and/or qualitative approaches depending on information available
• use professional judgement
• consider overall agreement (verbal & non verbal)
• check risk transfer at inception of contract and re check whenever changes affect future cash flows

Question 2

in a risk transfer contract, what is included in the ‘overall agreement’?

Answer 2

• contract
• amendments
• verbal agreements
• other written docs

Question 3

when should existence of risk transfer be (re)checked?

Answer 3

• at inception
• when contract change significantly alters expected future cash flows

Question 4

changes to a reinsurance contract that would trigger re-check of risk transfer

Answer 4

revision to premiums or coverage levels other than linear increase or decrease of quota share

Question 5

changes to a reinsurance contract that would not trigger re-check of risk transfer

Answer 5

events that are part of the normal course of the contract (e.g. build up of a claim fluctuation reserve)

Question 6

what should actuary do prior to re-check of risk transfer
?

Answer 6

check whether previous reinsurance assessment is still applicable

Question 7

describe the risk transfer concept

Answer 7

• is it obvious that the cedant’s financial interests are protected?
• don’t focus on probabilities: coverage for a low frequency/high severity passes of contract is arms-length and/or no risk-limiting features

Question 8

2 broad categories of risk-limiting contract features

Answer 8

• terms set in advance
• EBR: Experience- based renewals

Question 9

types of terms-set-in-advance risk limiting features

Answer 9

• adjustability of reinsurance premiums or commissions (e.g: LR caps)
• pre-set limits on timing of loss payments from reinsurer to insurer (e.g: quarterly) removes timing risk
• counterparties ceding back to original cedant

Question 10

examples of EBR (experience based renewals) risk limiting features

Answer 10

• future terms based on past experience and reinsurer guaranteed to recover losses
• forced renewals if the contract is in deficit (reinsurer is losing money)

Question 11

define “side arrangement”

Answer 11

agreement between cedant and reinsurer not directly incorporated into contract - may obscure intent of contract

Question 12

define “mirroring” and comment

Answer 12

defn: cedant & reinsurer carry similar liability estimate for the ceded claims
comment: it is appropriate for cendant & reinsurer actuaries to confer on large losses

Question 13

considerations in estimating a credit provision for a counter party

Answer 13

BEDD
- BEST rating of reinsurer
- expertise of reinsurer in relevant LOBs
- diversification of reinsurer
- disputes: history of claim disputes