T_F102_Reinsurance and Underwriting

Question 1

Forms of Reinsurance

Answer 1

Original Terms vs. Risk Premium

Proportional vs. Non-Proportional

• Proportional: Quota Share and Surplus
• Non-proportional: XoL
• Catastrophe and Stop Loss main types of XoL

Facultative vs. Obligatory
- Consider risks to each party, administration time and cost

Financial Reinsurance

• Capital and Balance Sheet management tool
• 2 types: asset enhancing and liability reducing

Question 2

Facultative vs. Obligatory

Answer 2

Consider risks to each party, administration time and cost

Question 3

Financial Reinsurance

Answer 3

• Capital and Balance Sheet management tool

- 2 types: asset enhancing and liability reducing

Question 4

Reasons for Reinsuring

Answer 4

• Direct financial reasons
• Business management
• Technical services

Question 5

Cost and Risks of Reinsuring

Answer 5

• Reinsurer’s profit
• Consider how much to reinsure (type and size of retention limit)
• Model vs. other alternatives
• Counterparty, operational and legal risk

Question 6

Direct financial reasons: reinsurance

Answer 6

• reduce volatility,
• protect solvency,
• manage capital,
• may be cheap to reinsure.

Question 7

Business management: reinsurance

Answer 7

write more business/reduce new business strain, can write aggregated risks, fin re.

Question 8

Technical services: reinsurance

Answer 8

pricing and development advice (especially if start up or new business line), pooling of data, global reach, reduce parameter risk.

Question 9

Consider how much to reinsure:

Answer 9

• average benefit level and expected distribution of claims,
• company’s risk appetite,
• level of free assets,
• availability of reinsurance (price and terms),
• extent of technical assistance required,
• effect on capital of different retention limits,
• profit share options, retention on other products,
• nature of sum assured (e.g. discretionary future increases),
• market practice,
• expected mix and volume of business,
• possible aggregations of risk (e.g. geographic).

Question 10

Reasons to choose a particular reinsurer

Answer 10

• Greater financial strength -> less likely to default
• Broader coverage -> can accept higher sum assured or older ages
• Generous profit sharing