RISK MANAGEMENT Flashcards
What are the five aspects a company must have in place to demonstrate sound risk management (2017 Insurance Act)?
people
- good corporate governance (roles and responsibilities)
- adequate control functions (including actuarial function and internal audit function)
- independent audit and monitoring functions
procedures
- sound risk management procedures and models (well tested, clearly defined, embedded into business strategy and operation, and fully documented)
- adequate disclosure and reporting to various stakeholders.
What is the difference between quota share and surplus reinsurance?
QS
- fixed % of risk
- share portion of profits too
- get lots of perks
Surplus
- fixed % of risk above retention limit
- proportion varies from risk to risk
- retention limit varies depending on class of business
- only applies if sum assured is fixed
What is the difference between co-insurance/original terms reinsurance and risk premium reinsurance?
- for risk business, the difference is the premium charged by the reinsurer
original terms
- equal share in premium + claims
- insurer decides on reinsurance premium, which is level
- reinsurer has set this before (rare)
- have to share profits
- difficult with with-profits business because reinsurer would have to follow cedant’s bonus rates (might not be in their best interests)
- reinsurance takes on full risk (including investment risk and early lapse risk)
- reinsurer sets commission
risk premium
- reinsurer decides on reinsurance premium
- premium based on current age
- changes to OP don’t affect reinsurance premium so can respond to competitor pricing quickly
What is deposits back?
- supervisory authority requires reinsurer to deposit back reserve back to cednat
- then reinsurer no longer at risk of default or investment risk
- cedant is able to benefit from added investment returns
- overall everyone’s balance sheet improves
What is reinsurance commission?
- sum paid to insurer for reinsured business
- good comm means that good future profits + good claims XP due to good uw
- comm cover: comm paid by reinsure to brokers etc. (return comm) + part/all of insurer’s initial expenses (override comm)
What is sum at risk reinsurance?
- can be QS/surplus arrangement
- only sum at risk is reinsured
- only applicable when benefit is known and is a lump sum and reserves are big
- for unit-linked, sum at risk is excess of benefit over bid value of units
- premium must be risk premiums
What are the reasons for reinsurance?
- limit large losses (individual and aggregate)
- financial assistance and relief from capital strain
- access to experience - data, uw, product design
- ability to take on bigger risks
- ability to write larger amounts of business
- lower solvency requirement
- smoothing of results
What does the choice of reinsurance method depend on?
- needs of the ceding company
- the reinsurance cost (dictate the retention limit)
- technical expertise offered by the reinsurer
- type of business
- maturity of business (young business might need lots of start-up capital)
- legal and tax conditions applying
- forms of reinsurance coverage available.
What kind of reports would an independent actuary look into?
Company Information
- Corporate documents (memorandum, articles of association)
- Latest financial statements and regulatory returns
Actuarial Reports
- HAF’s report on financial impact of the scheme
- ORSA report (especially any out-of-cycle assessments)
- Risk management policies (capital, ALM, credit, investment, underwriting, reinsurance)
Policyholder Materials
- Reports on policyholder expectations
- Benefit illustration bases
- Sample policy documents showing profit participation and variable charges
Transaction Documents
- Asset portfolio reports and investment policies
- Alternative scheme evaluations
- Systems integration assessments (for transfers)
- Regulatory correspondence
- Transaction agreements (reinsurance, sale, amalgamation)
- Draft policyholder communications
