CIA Reinsurance Flashcards
List the key principles of risk transfer assessment. (4)
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
In a risk transfer contract, what is included in the ‘overall agreement’? (4)
- Contract
- Amendments
- Verbal agreements
- Other written documents
When should the existence of risk transfer be (re)checked? (2)
- at inception
- when a contract change significantly alters expected future cash flows
Changes to a reinsurance contract that would trigger re-check of risk transfer.
Revision to premiums or coverage levels OTHER THAN linear increase/decrease of quota share.
Changes to reinsurance contract that would NOT trigger re-check of risk transfer?
Events that are part of the normal course of contract (eg.: build-up of a Claim Fluctuation Reserve).
What should the actuary do PRIOR to re-check of risk transfer.
Check whether the previous reinsurance assessment is still applicable.
Describe the concept of RISK TRANSFER. (2)
- 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
2 broad categories of risk-limiting contract features.
Terms set in advance
experience-based renewals (EBR)
Types of terms-set-in-advance risk limiting features. (3)
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
Examples of EBR (Experience Based Renewals) risk limiting features. (2)
- future terms BASED ON past experience (and reinsurer guaranteed to recover losses)
- forced renewals if the contract is in deficit (reinsurer is losing money)
Define ‘Side Agreement’.
These are agreements between cedant and reinsurer NOT DIRECTLY INCORPORATED into a contract. However , this may obscure the intent of the contract.
Define ‘mirroring’ and provide comments.
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
Considerations in estimating a credit provision for a counter-party. (4)
BEST rating of reinsurer
EXPERTISE of reinsurer in relevant LOBs
DIVERSIFICATION of reinsurer
DISPUTES: history of claims disputes