Freihaut

Question 1

Reinsurance Attestation Supplement

Answer 1

No separate agreements between parties; documentation for every contract where risk is not self-evident; reporting entity complies with SSAP 62; appropriate controls

Question 2

“Substantially all”

Answer 2

Assumes virtually all of the insurance risk of the reinsured portion of the underlying contracts (quota share)

Question 3

“Reasonably self-evident”

Answer 3

Aggregate limits no less than one per occurrence limit; no ceding commissions; rate on line is under 500%

Question 4

10-10 rule

Answer 4

At least a 10% chance of a 10% or greater loss

Question 5

Expected reinsurer deficit

Answer 5

Prob (NPV UW loss to reinsurer) * Avg Severity; risk transfer exists if this is greater than 1% of premium

Question 6

Exclusions from risk transfer analysis

Answer 6

Profit commissions (only focuses on loss generating scenarios)
Reinsurer expenses (not a cash flow)

Question 7

Interest rate in risk transfer analysis

Answer 7

Same discount rate needs to be used in each simulation (SSAP 62); AAA states same interest rate to discount cash flows

Question 8

Implicit parameter risk

Answer 8

Slightly higher expected loss input, increased expected volatility

Question 9

Explicit parameter risk

Answer 9

Varying parameters; more judgment involved

Question 10

Criteria to qualify for reinsurance treatment

Answer 10

1. Reinsurer assumes significant insurance risk

2. It is reasonably possible that reinsurer may realize a significant loss

Question 11

Contract qualifies as reinsurance to GAAP

Answer 11

Assumed to qualify according to SAP, and vice versa

Question 12

Rate on line

Answer 12

Premium / limit

Question 13

Low discount rate in risk transfer test

Answer 13

Results in higher present value of losses

Question 14

Risk transfer: when premium is dependent on future events

Answer 14

Initial deposit premium: easily manipulated
Expected premium: may over-detect risk transfer
Actual premium: best option (based on losses simulated)
[Fees: should be included, treated as premium]

Question 15

Risk transfer evaluation date impacts

Answer 15

Interest rate

Losses considered

Question 16

Frequency of retesting for risk transfer

Answer 16

Unless major changes made, no need to retest

Question 17

Prescribed payment patterns

Answer 17

Does not qualify as having risk transfer

Question 18

Risk transfer: alternatives to risk free rate (lower)

Answer 18

Not likely to be reasonable; also, lower rate over detects risk transfer

Question 19

Risk transfer: alternatives to risk free rate (higher)

Answer 19

Use reinsurer expected yield, however likely unknown, and discounting will be affected (better yield, less chance of risk transfer)

Question 20

Use of yield curve in risk transfer analysis

Answer 20

Produce more stringent risk transfer analysis (rates at longer durations generally higher); however not consistent with SSAP 62

Question 21

Risk transfer test: selection of loss distribution

Answer 21

Difficult even for MM; really focusing on right tail

Question 22

Parameter risk

Answer 22

Risk that selected parameters are incorrect; reasonable to include in risk transfer analysis