T_F102_Reinsurance and Underwriting 2

Question 1

Reinsurance Examples

2. Proprietary company with a large portfolio of group risk business

Answer 1

Exposed to risk of higher than expected mortality, fluctuations in claim levels and catastrophe risk.

Since company is large, surplus reinsurance with high retention on risk premium basis is likely.

Essentially XoL for group like cover, but surplus ensures future escalation is shared for PHI claims.

Reinsurer will want some risk to be retained by cedant to ensure there is interest in managing the claim to recovery.

Obligatory/Obligatory likely to reduce turn-around times for new business quotes.

Cedant likely to require advice when setting pricing basis, particularly for large, experience rated schemes.

Catastrophe cover required with multiple layers.

Question 2

Underwriting

Answer 2

Reasons for underwriting
- primarily to assess and rate risks appropriately

Forms of underwriting- medical, lifestyle, financial, claims

Setting underwriting level

What to do after underwriting

Question 3

Reasons for U/W:

Answer 3

• reduce anti-selection (especially if different to market),
• rate accurately and fairly,
• identify where special terms may be needed, cyclical relationship with pricing basis,
• financial u/w reduces risk of overinsurance,
• potentially increases sales as less turned down (but may also be barrier),

Question 4

Medical U/W:

Answer 4

manage longevity/mortality risk;
use info from proposal form,
doctors or specialists.

Question 5

Lifestyle: uw

Answer 5

consider occupation, leisure pursuits (e.g. skydiving), country, salary, level of cover.

Question 6

Financial: uw

Answer 6

Person or business (key man, contingent liability, buy/sell)

- ensure affordability and also identify possible anti-selection.

Question 7

Claims: uw

Answer 7

check for exclusions,

potential risk of reputational damage, may be difficult to enforce.

Question 8

Income protection: uw

Answer 8

Need info to support the claim, may then be managed and can help determine length of disability (e.g. for reserving purposes)

Question 9

Setting U/W level:

Answer 9

• cost and benefit
• U/W should pay for itself; risk of antiselection;
• sensitivity of sales to U/W level;
• effectiveness of U/W;
• required level of homogeneity; regulation;
• reinsurer may specify;
• company’s marketing strategy;
• market practice;
• first to administrator then to underwriter if deemed high risk (process considerations).

Question 10

What to do after U/W:

Answer 10

• send to specialist doctor for more info;
• decline cover;
• load premium;
• build in exclusions; defer decision;
• offer different benefit (e.g. accidental death cover instead of full life cover)