CIA.Reins

Question 1

4 Key Pricinples for Accessing Risk Transfer

Answer 1

1. There are several approaches that can be used to assess the existency of risk transfer
   
   • no signle test will be applicable in assessing existence of risk for each and every tyo
2. professional judgement will be required
3. consider Entire agreement consisting with of the reinsurance contract, and all wirtten/oral agreement & correspondence
4. re-access the risk transfer at the inspection and when a change to the contract that significantly alters the expected future CFs
   
   • significant changes: revision to premiums or coverage levels other than linear +/- of quota-shares
   • re-check wont trigger if events are part of normal course of the contract (eg. build-up of a Claim Fluctuation Reserve)

Question 2

Self-evident

Answer 2

RiskTrans paper: prem very low or potential loss is very high

CIA.Reins

• contract is at arm-length & no risk limiting factors
• dont focus on chance of the event

Coverages for a low freq, high sev is self-evident if the contract is at arm-length & no risk limiting factors

Question 3

2 types of risk-limiting feature

Answer 3

• terms set in advance
  
  • Adjustibility of renisurance prem/commisions
    
    • QS - adjustable commissions, loss cooridor provision
    • XOL: swing rate
    • LR caps
  • Pre-set limits to timing of paypments
    
    • rm timing risk
  • Porfit sharing
  • Commutation clause
  • High front-end reinsurance commission
• experience-based renewals

Question 4

Define “side agreement”

Answer 4

aggreement btw cedant & reinsurer NOT directly incorportated into contract - may obscure intent of contract

Question 5

Define & comment “Mirroring”

Answer 5

Def’n:

• cedant & reinsurer carry similar liability estimate for ceded claims
• ceded reinsurance liabilities = assumed reinsurance liabilities

Comment:

• it’s appropriate for cendant & reinsurer actuaries to confer on large losses

Question 6

Considerations of reinsurance counterparty risk

(credit risk)

Answer 6

• Rating from rating agencies
• History of dispute on claims
• MCT/BAAT ratio of reinsurer
• Diversitfication of reinsurer