Clark Flashcards
Quota Share
Flat % ceded of prem and loss
Has ceding commission
Surplus share
Variable % ceded of prem and loss
Varies by insured value with a retained line and given limit
Ceding Commission
Paid by reinsurer to cedant
Reflects that primary has higher UW expenses for writing ceded business
Sliding Scale Commission
Ceding commission that varies by actual loss ratio
Subject to min and max
Profit Commission
Reins Profit =
1 - Actual LR - Ceding Comm - Margin
Return a % of this to primary, applied to the ceded premium
Carryforward Provision
If prev LR was over min commission, sliding scale comm will shift by that amount
Smooths results over time
Loss Corridor
Cedant re-assumes a portion of reinsurers liability for a specified LR layer
Property Per-Risk Treaty Subject Premium
Treaty prem is % of subject prem
Subject prem is gross of treaty but net any inuring to benefit
Loss-occ then EP
Risk-att then WP
Casualty Per-Occ Treaty Layers
Retained working layer
Exposed excess layer
Clash Cover
Experience Rating vs Exposure Rating
Experience uses actual historical Loss
Expo rating models based on current risk profile
Free Cover
Possible under experience rating is no losses trend into higher portions of layers
Fix by using combo of experience and exposure rating
Measures of Credibility
Expected number of claims
Year-to-year variation in projected loss cost (can still get high cred with low counts if variation small)
A inures to the benefit of B
(Adjustments Needed)
A reduces risk for B
Exp Rating: restate losses to net
Expo Rating: Use orig insured value curve, but calc expo factor and subject prem net
Why not to use RAA excess dev factors (for pricing casualty per-occ under experience rating)
-Reporting lag varies by company
-Mix of att pts and limits not broken out (dev varies by att pt)
-RAA may include asbestos claims which could distort dev
-WC data might not be consistent with respect to tabular discounts on large claims
Umbrella Drop-Down Provision
Covers losses ground-up loss if underlying agg limit is exhausted
Exposure factors must be modified if included
Swing Plan
Loads expenses to actual layer losses, then charge back to cedant
Need Agg Dist Model to price
Types of Aggregate Dist. Models
Empirical
Single Dist
Recursive
Collective Risk
Empirical Agg Models - Pros and Cons
Pro: Easy to calc
Cons:
-Actual may differ from historical
-May not reflect mix changes or growth
-May underrepresent true future volatility
Single Dist Agg Models - Pros and Cons
Pro: Simple to use
Cons:
-Doesn’t have no loss scenario
-No way to reflect impact of changing per-occ limits
Recursive Agg Models - Pros and Cons
Pros:
-Simple to use
-Provides accurate handling of low freq scenarios
Cons:
-More intensive calcs for high freqs
-Can only use single severity dist
Collective Risk Agg Models - Pros and Cons
Pro: More useful for complicated severity dists
Cons:
-“Black box”
-Assumes independence between occurences
-Large errors possible for low freq scenarios
-Reflects process variance but not full parameter variance
Reinstatement
Can occur when layer exhausted
Options:
pro-rata to amt replenished
pro-rata to time remaining
Finite Risk Covers
Multi-year contracts for property CAT coverage
May not qualify as reinsurance
How to determine if contract is reinsurance
- Reinsurer assumes significant risk
- Reinsurer has reasonable possibility of significant loss
