Reinsurance (29 – 30)

Question 1

Reinsurance types

Answer 1

– original terms
– risk premium
– XL (CAT, stop loss)
– Financial

Question 2

Original terms

Answer 2

1. retail rates
2. level risk premium

Question 3

Reasons for reinsurance

Answer 3

– transfer risk off balance sheet
– reduce volatility & uncertainty
– raise capital
– financing new business strain
– technical assistance
– regulatory/tax advantage
– lower costs
– lower parameter + claim payout fluctuation

Other
– increase profit
– lower capital requirement
– disaggregate risks
– spread risks

Question 4

Need to lower fluctuations

Answer 4

– avoid insolvency
– lower free A
– increase ROC/ROA
– lower dividend fluctuations

Other methods
– reserve
– lower sums

Question 5

Technical assistance

Answer 5

– underwriting
– PD
– pricing
– systems development

Question 6

Considerations before reinsuring

Answer 6

– cost
– counter party risk
– types of RE
– amount of RE
– retention limits

Question 7

Retention limit considerations

Answer 7

– average benefit level + distribution
– risk appetite
– free asset
– terms available
– level of familiarity
– effect on regulatory capital
– profit sharing
– other retension
– future increase in sums

Question 8

Approaches in setting the retention limits

Answer 8

1. stochastic
   – RE only
   – RE & fluctuations reserve
2. financial economics

Question 9

Risk premium reinsurance

Answer 9

In this method of reinsurance the direct writing company reinsures part of the sum at risk on the reinsurer’s premium basis.

The sum at risk is the excess of the benefit payable over the valuation reserve.

Question 10

Deposit back advantages for RE

Answer 10

– x match bonuses
– x hold entire unit
– x invest in unfamiliar market