1 / 55

INTRODUCTION TO REINSURANCE

INTRODUCTION TO REINSURANCE. NOLAN ASCH CAS RATEMAKING SEMINAR MARCH 8-9, 2007 INT-4. INSURANCE. The insurer insures the individual or the corporation. REINSURANCE. The REINSURER insures the insurance company. REINSURANCE PLACEMENT MECHANISMS. BROKER. DIRECT.

bburgoyne
Download Presentation

INTRODUCTION TO REINSURANCE

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. INTRODUCTION TO REINSURANCE NOLAN ASCH CAS RATEMAKING SEMINAR MARCH 8-9, 2007 INT-4

  2. INSURANCE The insurer insures the individual or the corporation

  3. REINSURANCE The REINSURER insures the insurance company

  4. REINSURANCE PLACEMENT MECHANISMS • BROKER DIRECT

  5. INSURANCE vs. REINSURANCE • BOTH concerned with future contingencies • BOTH require underwriting skills (risk) • BOTH involve transfer of risk • BOTH require payment of premium • BOTH provide protection • BOTH subject to (some) regulation

  6. REINSURANCE • Buyers assumed to be knowledgeable • Responds to actual loss • Provides indemnification only • Reimburses for payments already made • Usually Global

  7. FUNCTIONS OF REINSURANCE • CAPACITY

  8. CAPACITY • Single Risk (Fac - Sears Tower) • PORTFOLIO (Treaty)

  9. CAPACITY MECHANISMS • Excess-of-Loss • Quota Share

  10. FUNCTIONS OF REINSURANCE • CAPACITY • CATASTROPHE

  11. CATASTROPHE • QUOTA SHARE • EXCESS OF LOSS • SECURITIZATION

  12. CATASTROPHE • They are Cat Models not magic • Was AIR client #4 in 1987 • User tips

  13. CATASTROPHE • Outputs are probabilistic • The “1 in 100 year event” • Is really a scenario with a 1% chance of occurring in any calendar year. • Look at the range of loss outcomes.

  14. CATASTROPHEGIGO Garbage-In Garbage-out Cat Models NEED VERY detailed and accurate data input

  15. FUNCTIONS OF REINSURANCE • CAPACITY • CATASTROPHE • STABILIZATION

  16. STABILIZATION Reduction in Variance (swings)

  17. STABILIZATION Extreme contractual case “STOP-LOSS” Aggregate Excess

  18. FUNCTIONS OF REINSURANCE • CAPACITY • CATASTROPHE • STABILIZATION • FINANCING

  19. FINANCINGReducing Liabilities Ceding Commissions “Overrides”

  20. FINANCING May increase PHS due to transaction

  21. FINANCING Finite Reinsurance...... Pre-Elliott Spitzer ALL Reinsurance is Financial Post Elliott Spitzer I don’t think so….

  22. FUNCTIONS OF REINSURANCE • CAPACITY • CATASTROPHE • STABILIZATION • FINANCING • ENTER AND EXIT MARKETS

  23. ENTER OR EXIT MARKETS Lessens risk as you learn With 100% Q/S you exit

  24. FUNCTIONS OF REINSURANCE • CAPACITY • CATASTROPHE • STABILIZATION • FINANCING • ENTER AND EXIT MARKETS • UTILIZE REINSURER EXPERTISE

  25. USING REINSURER EXPERTISE Large or unusual claims Large or unusual risks Special relationships and/or knowledge

  26. LIMITATIONS OF REINSURANCE • Will NOT make bad business profitable • Transaction Costs • Rating Agency Impacts (Gross/Net)

  27. How Reinsurance Is Pricedin Practice Hypothetical Examples

  28. NO PRICE REGULATION • (virtually)

  29. CASE BY CASE

  30. NEGOTIATION

  31. FLEXIBILITY IN STRUCTUREContractual

  32. EXCESS OF LOSS LAYERING

  33. $19.75 Mill xs $0.25 Mill (sounds like a wide layer)

  34. TYPICAL LAYERING 10M xs 10M Price F 5M xs 5M Price E 3M xs 2M Price D Price C 1M xs 1M Price B Price A 500 xs 500 250 xs 250

  35. High Frequency/ Low Severity Buffer layers ie 250 xs 250 Price A 250 xs 250

  36. Low Frequency/ High Severity 10M xs 10M Price F Capacity Layers i.e. 10m xs 10m

  37. CLIENT/BROKERNEGOTIATION Change or re-subdivide the layering

  38. Pricing for 500 xs 500 Later, request the 250 xs 250 LAYER TRAPMANY PERMUTATIONS

  39. at “last minute” Ask for 150 xs 100 --Requires more data LAYER TRAP

  40. PRICING TRAPS • AGGREGATE ANNUAL DEDUCTIBLES

  41. ASSUME A 10% RATE • Request a 1% AAD • Request a 2% AAD • Request an 8% AAD • NOW the risk/variance • becomes LARGE vs a 2% rate

  42. INFORMATION FOR PRICING NO standards

  43. WHAT THE REINSURER WANTS EVERYTHING

  44. WHAT THE BROKER/CLIENTMAY WISH TO SUPPLY NOTHING

  45. POSSIBLEOUTCOMES

  46. GIGO Garbage-In Garbage-out

  47. NINO Nothing-in Nothing-out

  48. EXPERIENCE RATING Using losses of the risk to price the risk.

  49. HISTORIC STANDARD All losses at half the attachment point & up

  50. ACTUARIAL APPROACH DETRENDED LOSSES Varies with age of claim BEGINS to show ACTUAL CLAIMS as a sample outcome

More Related