CIA.Reins Flashcards

1
Q

List the 4 key principles of risk transfer assessment

A
  1. Use quantitative and/or qualitative approaches depending on information available
  2. Use professional judgment
  3. Consider overall agreement (all verbal & non-verbal agreements)
  4. Check risk transfer at inception of contract
    (& re-check whenever changes affect future cash flows)
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2
Q

When should existence of risk transfer be (re)checked

A
  • at inception
  • when contract change significantly affects expected future cash flows
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3
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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4
Q

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

A

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

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5
Q

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

A

Check whether previous reinsurance assessment is still applicable

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6
Q

Identify 2 broad categories of risk-limiting contract features

A
  • terms set in advance
  • experience-based renewals (EBR)
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7
Q

Identify 3 types of terms-set-in-advance risk limiting features

A
  • ADJUSTABILITY of reinsurace premiums or commissions (Ex: LR caps)
  • PRE-SET LIMITS on timing of loss payments from reinsurer to insurer (Ex: qtrly) - removes timing risk
  • COUNTERPARTIES ceding back to original cedant
  • Profit Sharing
  • Forced renewals
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8
Q

Identify 2 examples of ‘EBR’ (Experience-Based Renewals) risk limiting features

A
  • future terms BASED ON past experience (& reinsurer guaranteed to recover losses)
  • forced renewals if the contract is in deficit (reinsurer is losing money)
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9
Q

Describe 3 risk-limiting features of the given contract & 2 that don’t limit risk

A

Risk-limiting features:

  1. High retention (10% of limit)
  2. Swing loss ratio (LR > 75% => ceding companies pays reinsurer => reduces risk transfer)
  3. Automatic commutation after 7 years unless further payment is made to reinsurer

Non risk-limiting features:

  1. Losses are paid when they occur (so timing risk exists)
  2. Premium is paid quarterly
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10
Q

Define ‘side agreement’

A

Agreement between cedant & reinsurer NOT DIRECTLY INCORPORATED into contract - may obscure intent of contract

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11
Q

Define ‘mirroring’

A

Cedant & reinsurer carry SIMILAR LIABILITY ESTIMATE for the ceded claims

Note: It is appropriate for cedant & reinsurer actuaries to confer on large losses

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12
Q

Identify 4 considerations in estimating a credit provision for a counter-party

A
  1. BEST rating of reinsurer
  2. EXPERTISE of reinsurer in relevant LOBs
  3. DIVERSIFICATION of reinsurer
  4. History of claims DISPUTES
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