CIA.Reins Flashcards
List the 4 key principles of risk transfer assessment
- Use quantitative and/or qualitative approaches depending on information available
- Use professional judgment
- Consider overall agreement (all verbal & non-verbal agreements)
- Check risk transfer at inception of contract
(& re-check whenever changes affect future cash flows)
When should existence of risk transfer be (re)checked
- at inception
- when contract change significantly affects 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 a reinsurance contract that would NOT trigger re-check of risk transfer
Events that are part of the normal course of the contract (Ex: build-up of a Claim Fluctuation Reserve)
What should actuary do PRIOR to re-check of risk transfer
Check whether previous reinsurance assessment is still applicable
Identify 2 broad categories of risk-limiting contract features
- terms set in advance
- experience-based renewals (EBR)
Identify 3 types of terms-set-in-advance
risk limiting features
- 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
Identify 2 examples of ‘EBR’ (Experience-Based Renewals) risk limiting features
- future terms BASED ON past experience (& reinsurer guaranteed to recover losses)
- forced renewals if the contract is in deficit (reinsurer is losing money)
Describe 3 risk-limiting features of the given contract & 2 that don’t limit risk
Risk-limiting features:
- High retention (10% of limit)
- Swing loss ratio (LR > 75% => ceding companies pays reinsurer => reduces risk transfer)
- Automatic commutation after 7 years unless further payment is made to reinsurer
Non risk-limiting features:
- Losses are paid when they occur (so timing risk exists)
- Premium is paid quarterly
Define ‘side agreement’
Agreement between cedant & reinsurer NOT DIRECTLY INCORPORATED into contract - may obscure intent of contract
Define ‘mirroring’
Cedant & reinsurer carry SIMILAR LIABILITY ESTIMATE for the ceded claims
Note: It is appropriate for cedant & reinsurer actuaries to confer on large losses
Identify 4 considerations in estimating a credit provision for a counter-party
- BEST rating of reinsurer
- EXPERTISE of reinsurer in relevant LOBs
- DIVERSIFICATION of reinsurer
- History of claims DISPUTES