CIA Reinsurance Flashcards

1
Q

List the key principles of risk transfer assessment. (4)

A

KP1: use quantitative and/or qualitative approaches depending on the information available.
KP2: use professional judgement
KP3: consider overall agreement
KP4: recheck risk transfer when certain conditions occur

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2
Q

In a risk transfer contract, what is included in the ‘overall agreement’? (4)

A
  • Contract
  • Amendments
  • Verbal agreements
  • Other written documents
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3
Q

When should the existence of risk transfer be (re)checked? (2)

A
  • at inception

- when a contract change significantly alters expected future cash flows

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4
Q

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

A

Revision to premiums or coverage levels OTHER THAN linear increase/decrease of quota share.

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5
Q

Changes to reinsurance contract that would NOT trigger re-check of risk transfer?

A

Events that are part of the normal course of contract (eg.: build-up of a Claim Fluctuation Reserve).

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6
Q

What should the actuary do PRIOR to re-check of risk transfer.

A

Check whether the previous reinsurance assessment is still applicable.

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7
Q

Describe the concept of RISK TRANSFER. (2)

A
  • is it obvious that the cedant’s financial interests are protected?
  • don’t focus on probabilities: coverage for low frequency, high severity LOB passes IF contract is arms-length and/or there are no risk-limiting features
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8
Q

2 broad categories of risk-limiting contract features.

A

Terms set in advance

experience-based renewals (EBR)

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9
Q

Types of terms-set-in-advance risk limiting features. (3)

A

ADJUSTABILITY of reinsurance premiums or commissions (eg.: LR caps)
PRE-SET LIMITS on timing of payments (Eg.: quarterly) - remove timing risk
COUNTERPARTIES ceding back to the original cedant

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10
Q

Examples of EBR (Experience Based Renewals) risk limiting features. (2)

A
  • future terms BASED ON past experience (and reinsurer guaranteed to recover losses)
  • forced renewals if the contract is in deficit (reinsurer is losing money)
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11
Q

Define ‘Side Agreement’.

A

These are agreements between cedant and reinsurer NOT DIRECTLY INCORPORATED into a contract. However , this may obscure the intent of the contract.

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12
Q

Define ‘mirroring’ and provide comments.

A

Cedant and reinsurer carry SIMILAR LIABILITY ESTIMATE for the ceded claims
- it is appropriate for cedant’s and reinsurer’s actuaries to confer on large losses

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13
Q

Considerations in estimating a credit provision for a counter-party. (4)

A

BEST rating of reinsurer
EXPERTISE of reinsurer in relevant LOBs
DIVERSIFICATION of reinsurer
DISPUTES: history of claims disputes

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