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actuarial society of greater new york overview of the health reinsurance market
Actuarial Society of Greater New YorkOverview of the Health Reinsurance Market

Michael L. Frank

Donald J. Rusconi

Aquarius Capital

May 27, 2009

copyright and disclaimer
Copyright and Disclaimer

The material contained in this presentation has been prepared solely for informational purposes by Aquarius Capital Solutions Group LLC (Aquarius). The material is based on sources believed to be reliable and/or from proprietary data developed by Aquarius, but we do not represent as to its accuracy or its completeness. The content of this presentation is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. This document and its contents are proprietary to Aquarius. Neither this document nor its contents may be copied or reproduced in any manner without the express consent of Aquarius. Any requests or questions about this material should be forwarded to

biography of aquarius
Biography of Aquarius
  • 20+ Years Experience - Life, Accident & Health
  • Specialties – Insurance, HMO, Reinsurance & Employee Benefits
  • Services – Actuarial, Brokering/Consulting, Financial Analysis & Modeling, Reinsurance, U/Wing, Risk Mgmt
  • Credentials: ASA, FCA, MAAA, CFA®
  • Actuarial Society of Greater NY, Chairperson for Continuing Education
  • Society of Actuaries - Section Councils:
    • Current: Reinsurance Section, Entrepreneurial Actuarial Section
    • Retired: Actuary of the Future Section
    • Various NAIC/AAA Committees & Task Forces
  • Other Credentials
    • Licensed life, accident and health broker (25+ states)
    • Licensed reinsurance intermediary & managing general underwriter
    • Licensed life settlement broker
    • Listed Arbitrator for Reinsurance Association of America (RAA)
    • Associate, American College of Healthcare Executives (ACHE)
  • Other: Speak at Industry Meetings, Publish Articles, Industry Committees
  • Website:
  • Who Purchases Reinsurance?
  • What Product Lines are Reinsured
  • Why Companies Purchased Reinsurance?
  • Types of Reinsurance Structures
  • History of the Market/Capacity
  • Reinsurance Opportunities
  • Sample Transactions (Cases #1-3)
  • Employer Stop Loss Insurance Market
  • Finite Risk/Structured Risk Finance
reinsurance purchasers accident health
Reinsurance Purchasers (Accident & Health)

• Insurance Carriers

  • Program Managers on Behalf of Carrier Clients

• Managing General Underwriters (MGUs)

• Third Party Administrators (TPAs)

• Marketing Entities/General Agencies

• Reinsurers/Retrocessionaires

• Captive Insurance Companies

• Health Maintenance Organizations (HMOs)

• Medical Provider Groups (“Risk Taking”)

• Employer Groups (“Self-Funded”)

• Disease Management Companies

underlying product lines reinsured accident health
Underlying Product Lines Reinsured (Accident & Health)
  • Shorter Tail Coverage
    • Medical – Traditional, Consumer Driven, Limited Medical
    • Dental
    • Vision
    • Disability Income
    • Group Life and AD&D – Combined with health coverage

• Longer Tail Coverage

    • Long Term Care
    • Long Term Disability
    • Medicare Supplement

• Other (Hybrids)

    • HMO/Provider Excess Reinsurance
    • Accident Medical Coverage
    • Self-Funded Stop Loss Reinsurance
    • Disease Management Carve-Outs
reasons for reinsurance purchase
Reasons for Reinsurance Purchase
  • “Intellectual Capital”
    • Entry into new markets
  • Risk-Based Capital (“Surplus”) Relief
  • Regulatory Requirements
  • Remove volatility in results (risk transfer of catastrophic events)
    • Mitigate experience on new product offers (quota share)
    • Reduce exposure to catastrophic claims (excess of loss)
  • Leveraged Return on Capital – See Sample Cases
  • Not a vehicle to “dump loses on ignorant capacity”
reinsurance structures
Reinsurance Structures
  • Quota Share
  • Variable Quota Share
  • Yearly Renewable Term (YRT)
  • Aggregate (Excess of Loss)
  • Retrospective Premium Adjustments (“Swing Rate”)
  • Contracts with Maximum Limit Caps
  • Insolvency Coverage
  • Letter of Credit
  • Surety Bond
  • Parental Guarantees (“Keepwell” Agreement)
  • Separate Accounts & Cell Structures

Note: A&H market borrowed many concepts from P&C market!

the reinsurer s perspective the reinsurance food chain
The Reinsurer’s Perspective – The Reinsurance Food Chain
  • Employer contracts with carrier
    • Fully insured arrangement
    • Self-funded: specific and/or aggregate stop loss
  • Carrier’s administration options:
    • Provided directly to employer
    • Outsourced admin and/or marketing through TPA
    • Outsourced underwriting through MGU
  • Reinsurer assumes risk from carrier
  • Multiple reinsurers/retrocessionaires
reinsurance food chain tpa
Reinsurance Food Chain – TPA

Traditional TPA

ASO (UHC, Cigna, Aetna, BCBS)

Contract with employer group.

Direct relationship with employer group or groups retail broker.

Receives administrative fee on a per EE basis.

Provides stop loss directly to group or shopped by broker/consulting house.

Network management and claim payment.

Provides reporting to employer, MGU, Carrier/Reinsurer.

Have their own stop loss product.

  • Contract with provider network (PPO) and employer group.
  • Direct relationship with self-funded employer group.
  • Receives administrative fee on a per EE basis or % of premium.
  • Pays claims and places stop loss reinsurance for group.
  • Medical management services directly or through another vendor.
  • Provides reporting to employer, MGU, Carrier/Reinsurer.
reinsurance food chain mgu
Reinsurance Food Chain – MGU

Retail MGU

Reinsurance MGU

Contract with Reinsurer.

Underwrites blocks of stop loss reinsurance business written by Carrier/TPA/MGU.

Business referred by Reinsurance Intermediary.

Receives fee on a % of premium basis with potential profit commission.

Adjudicates reinsurance claims

Handles reinsurance/retrocession reporting

Audits of underlying MGU/Issuing Carrier

  • Contract with Issuing Carrier of stop loss reinsurance.
  • Underwrites stop loss reinsurance for self-funded groups (spec/agg.)
  • Business referred by TPA or may have own distribution.
  • Receives fee on a % of premium basis with potential profit commission.
  • Adjudicates retail stop loss claims
  • Marketing/broker credentialing
  • May handle reinsurer reporting for Issuing Carrier.
reinsurance food chain reinsurance intermediary
Reinsurance Food Chain – Reinsurance Intermediary
  • Places reinsurance between carrier, reinsurer and retrocessionaire(s) if applicable
    • Quota Share, Portfolio Excess (specific, aggregate, etc.)
  • Receives fee on a % of premium basis
  • May be responsible for bordereaux reporting to reinsurer(s) and retrocessionaire(s)
  • May handle reinsurance agreement/contract development.
reinsurance terminology
Reinsurance Terminology
  • Premium
  • Claims
  • Loss Ratio – Expenses divided by Premium
    • Gross vs Net?
  • Intermediary (brokerage) fees – if applicable
  • Various parameters may be incorporated to handle reinsurance transaction
    • Experience Refund or Profit Commission
    • Ceding Commission (Used for Case #1)
    • Future Premium
    • Deductibles (Attachment Points for Aggregate)
    • Reserves
    • Other
reinsurance agreement
Reinsurance Agreement
  • Treaty vs Slip
  • Inclusions:
    • Underwriting Guidelines -- may include MGU provisions
      • May define process for facultative underwriting
    • Claims Notification – may include TPA provisions
    • Bordereaux Reporting
  • Other Provisions:
    • Funds Held Provision
    • Commutations – Settlement of Liabilities
    • “Poison Pills” - Ratings Downgrading, Change of Control
    • Extra-contractual obligations
    • Arbitration Clause
history of reinsurance
History of Reinsurance

Profitable Period (Late 1980’s – early 1990’s)

  • Less Capacity
  • Purchaser less focused on cost of reinsurance
    • Smaller “slice of the expense pie”
  • Impact:
    • High medical trend
    • Market accepted high premium trend
    • High margin allowed room for mistakes
    • Reinsured less focused on cost of reinsurance
history of reinsurance17
History of Reinsurance
  • Unprofitable Period (mid 1990’s – 2000)
    • Many reinsurers experienced poor loss ratios
      • Stop Loss: specific > 125%; aggregate > 200%
      • Too much capacity including reinsurance MGUs
    • Major exodus in 1998 & 1999
      • Retrocessionaires lose $ in pools
        • e.g., Workers Comp, many other pools
      • True-up of historical reserves – Unanticipated Losses
history of reinsurance18
History of Reinsurance
  • Unprofitable Period(mid 1990’s- 2000)
  • Losses were due to a combination of all of the following
    • Capacity in mid 90’s significantly greater than the early 90’s (Market Pressure drives rates downward)
    • Non-risk-bearing entities (e.g., MGUs) were writing for fee income
    • Uncontrolled expenses
    • Ineffective underwriting and pricing for managed care
    • Sold rates were materially below manual rates
    • Reserve strengthening from prior underwriting years
history of reinsurance companies exit medical reinsurance arena
History of Reinsurance – Companies Exit Medical Reinsurance Arena

Many Companies in Market in 90’s Out by 2002/03:

• Swiss Re

• Sun Life

• Transamerica Re


• Lincoln

• D&H

Note: More than 30 companies exited market!

  • General American
  • Guardian
  • Life Re
  • AUL
  • ManuLife
  • Phoenix Mutual
  • Many others
history of reinsurance today mixed results period mid 2004 to today
History of Reinsurance – Today Mixed Results Period(mid 2004 to today)
  • Mergers & Acquisitions – Many consolidations
  • Growth in limited medical plans
  • Still significant stop loss direct writers (>25)
  • Limited medical reinsurance capacity for A&H (<5)
    • Limited HMO reinsurance/provider excess writers
    • Limited fully insured quota share capacity
    • Reinsurance MGUs becoming extinct (not direct MGUs)
    • Change in the “finite risk” or financial reinsurance market
history of reinsurance impact of disputed or litigious claims on reinsurance financials
History of Reinsurance – Impact of “Disputed” or Litigious Claims on Reinsurance Financials
  • Disputed claims have become a common practice in reinsurance in late 90’s and today due to historical losses
    • Workers Comp, LMX, reinsurance pools
  • Reinsurers have been assessing the likelihood of legal settlements
  • Claim Valuation/Reserving: Art vs. Science?
    • Time will tell based on empirical data (actual settlements)
  • Will influence business today & going forward
evaluating opportunities
Evaluating Opportunities
  • Internal risk margin, RBC, and ROE requirements
  • Quality of potential business partner(s)
  • Medical claim costs & leveraged trend
  • Environmental factors
  • Reviewing the reinsurance contract
evaluating opportunities quality of business partner s
Evaluating Opportunities – Quality of Business Partner(s)
  • Who performs various functions?
    • Actuarial, underwriting, claims, marketing, etc.
    • Carrier (Ceding Company) vs. Reinsurer vs. third party
  • Considerations:
    • Reputation and track record
    • Level and breadth of expertise
    • Compensation and incentives
    • Critical Mass vs. Start up
    • Business goals: growth, profit, core business, etc.
evaluating opportunities types of large claims
Evaluating Opportunities – Types of Large Claims
  • Organ Transplants
  • High Tech Cardiovascular
  • Neurological Conditions
  • Cancer
  • High Risk Maternity & Neonates
  • Severe Trauma Including Burns
  • Other Catastrophic Illnesses
    • HIV/AIDS
  • High Cost Prescription Drugs
    • Factor VIII
reinsurance critical success factors
ReinsuranceCritical Success Factors
  • Requires strong financial underwriting by a reinsurer
  • Different state jurisdictions (local Department of Insurance)
    • Will have different regulatory requirements
    • Varying RBC standards
    • Varying reinsurance rules/interpretations
  • How well does reinsurer understand underlying business being reinsured?
  • Reinsurers may have different or additional reporting requirements than the plan is accustomed to, including specified turnaround times for reporting.
critical success factors continued
Critical Success Factors(Continued)
  • May not be accepted by reinsurer or ceding company’s executive management
    • Not comfortable with the concept - - especially finite risk deals
    • Assuming insolvency risk or credit risk
  • Each ceding company will require a unique solution.
  • This will change your organization’s financial statements
  • Do all parties understand amount of risk transferred?
sample case 1 surplus relief leverage return on income
Sample Case #1(Surplus Relief & Leverage Return on Income)
  • Multi-line insurance company
    • Writes $100 million of annual premiums
    • RBC formula requires more than $40 million in capital
  • Reinsurer
    • Provides (assumes) 50% of the quota-share
    • On paper - $50 million in premium and the same % of the total risk, 50%.
    • Transaction - Quota share w/ sliding scale ceding (administrative expense) allowance
    • The profit and income levels of the plan may be achieved based on a sliding scale ceding commission or experience refund component.
sample case 1 cont
Sample Case #1 (Cont.)
  • Insurance company receives reserve credit since claims reinsured.
  • Transaction is written on a funds held basis, thereby ceding company has a large working fund to pay underlying claims and administrative expenses.
  • Company may free up significant capital to manage the business or reinvest into the company (surplus/RBC relief).
  • Cost may be more efficient than borrowing capital from:
    • Venture capital market - Would want ownership plus high costs.
    • Parent company – May be challenged to allocate capital if competing with other ventures and product lines.
drivers of rbc formula for a h
Drivers of RBC Formula for A&H
  • Premium
  • Incurred Claims
  • Reserves (Incurred & Unpaid Claims)
    • Morbidity Assumptions
    • Discount Rates
disease management reinsurance case 2
Disease Management Reinsurance (Case #2)
  • Disease Management Company (DMC) assumes risk from HMO
  • DMC guarantees (e.g., 10%) reduction in post acute cost due to:
    • better contracts
    • reduced admits
    • reduced length of stay (LOS)
  • HMO requires guaranteed savings
    • Letter of credit from DMC to assume risk reserve transfer (3 months capitation)
    • DMC obtains a reinsurance policy to protect against insolvency
the disease management co reinsurance food chain case 2









The Disease Management Co. Reinsurance “Food Chain” – Case #2
Is Reinsurance Cheaper than Borrowing from Capital Markets? Is Capital Available from Parent Company?
sample case study multi year portfolio aggregate stop loss case 3
Sample Case Study – Multi Year Portfolio Aggregate Stop Loss (Case #3)
  • Insurance Company buys a three (3) year aggregate stop loss to smooth earnings.
  • Goal to handle adverse experience for a non-performing (exiting) line of business
  • Years 2 & 3 - Attachment points in at highest level
    • Increase with trend (inflation) and prior experience
    • Losses carried by reinsurer on its balance sheet for Years 1 and 2.
    • Year 2 & 3 - Functions as a “sleep” cover
    • Deficit (carry forward) handled through risk charges.
  • Premium to buy coverage potentially tax deductible to insurance company.
aggregate stop loss case 3 continued
Aggregate Stop Loss - Case #3 (Continued)
  • Premium = $2 million per year
  • Coverage Period = 3 years
  • Claims Attachment Points
      • Year 1 = Coverage for total claims > $84.5 million
      • Year 2 = Above $120.0 million
      • Year 3 = Above $135.0 million
  • Maximum Benefit = $25 million
employer stop loss innovations
Employer Stop Loss – Innovations?
  • Underwriting tools
    • Aggregating specific deductibles (ASDs)
    • Lasers
  • Marketing
    • PEOs and employee-leasing firms
    • Associations
    • Potential FAS 106 or GASB 45 Solutions for OPEB
  • Underlying benefit plan design
    • Consumer-driven and mini-med plans
    • Carving out certain benefit categories, e.g., Rx or transplants
    • Different cost sharing arrangements, e.g., monthly deductibles
    • Can TPA/carrier administer plans as written or priced?
  • Pricing “innovations” require more sophisticated modeling
employer stop loss aggregating specific deductibles asds
Employer Stop Loss – Aggregating Specific Deductibles (ASDs)
  • Additional deductible or retention for ceding company
    • Functions as cost shifting exercise to reduce premium
  • Unique to per person excess of loss coverage
  • Lowers plan costs
    • After reaching individual deductibles, claims not paid until exceeding an additional aggregate deductible
    • Used to offset rate (inflation) increases
  • Aggregating Deductible traditionally a multiple of deductible (e.g., 2, 3 or 4 times specific deductible)
employer stop loss lasers
Employer Stop Loss – “Lasers”
  • Additional deductible or retention for ceding company, for specifically identified individual(s)
    • Functions as cost shifting exercise to reduce premium
    • Lowers plan costs by increasing individual deductibles
    • Underwriting tool to combat anti-selection, separating “known” versus “unknown” risk
  • May be viewed negatively by some market participants
    • “Singling out individuals is not insurance”
    • The alternative might be reinsurers not quoting or rating up to cover this non-lasered cost
  • Lasers may be placed separately or in combination
    • Combination lasers may resemble ASDs or be contingent upon factors such as loss ratio
disclosure statements
Disclosure Statements

What information is requested on a disclosure statement?

• Individuals currently disabled or confined in a medical facility/hospital

• Individuals pre-certified within the last three months.

• Individuals that received medical services during the current plan year the cost of which exceeds the lesser of, 50% of the lowest Specific Retention Amount applied for or $50,000, and for which bills have been received and processed by the by the Claims Administrator (TPA) and entered into their Claims System.

• Individuals that have been identified as a candidate for Case Management and as having the potential to exceed during the policy period, the lesser of, 50% of the lowest Specific Retention Amount applied for, or $50,000.

• Individuals that have been diagnosed, during the current plan year, with a condition represented by any of the ICD-9 codes contained in the attached list and have also received medical services costing $5,000 during the same period.

employer stop loss definitions
Employer Stop Loss – Definitions
  • Specific Advanced Funding – cash flow assistance for specific stop loss claims once specific deductible has been paid in full.
  • Specific Terminal Liability – provides paid claim run-out protection on specific stop loss if the employer terminates stop loss policy.
  • Aggregate Accommodation – cash flow assistance for aggregate claims in the event year-to-date paid claims exceed the ytd aggregate attachment point.
  • Aggregate Terminal Liability – provides paid claim run-out protection on aggregate claims if the employer terminates stop loss policy.
  • Contract Basis – defines dates of service and payment periods (e.g., 12/15 is incurred in twelve months, paid within fifteen months).
risk attaching vs incurred contract
Risk Attaching vs. Incurred Contract
  • Risk Attaching – duration of risk responsibility within a treaty year of reinsurance contract based on employer effective dates.
    • Treaty year 2009 reflects all employers groups written between 1/2009 – 12/2009.
    • Paid claim risk could extend out to 11/2011. Here’s how…
    • Employer group effective 12/2009 to 11/2010 with a Contract Type of 12/24 (incurred in 12 paid in 24.)
    • Total of 35 months before one treaty year is complete.
    • Most typical reinsurance contract between a carrier and reinsurer
  • Incurred – duration of risk responsibility within a treaty year of reinsurance contract based on date of service (incurred date.)
    • Treaty year 2009 reflects all claims with a date of service between 1/2009 – 12/2009.
    • Treaty year complete when last payment of 2009 incurred claims is made.
employer stop loss modeling
Employer Stop Loss – Modeling
  • Are there any operational changes, i.e., changes in administration, claims, marketing, etc.?
  • Changes in plan design, underlying plans and stop loss plans?
  • Do you expect any impact from behavioral changes, e.g., “ownership” of an HRA or HSA account?
  • Will the claim run-out pattern change?
  • Is data sufficient and appropriate?
  • Are the assumptions appropriate?
employer stop loss modeling cont
Employer Stop Loss – Modeling (cont.)
  • Appropriate Reserving Methodologies
    • Chain Ladder method (development/completion factors)
    • Bornhuetter Ferguson method – combines results from chain ladder method with expected claim loss ratios.
  • Appropriate Frequency and Severity distributions
    • Changes in the frequency claims at different claim intervals
    • Changes in the severity or intensity of services
  • Adequate Leverage Trend Assumptions
leveraged trend example
Leveraged Trend (Example)
  • 2007 Ground-up claim = $100,000 Specific deductible = $50,000 Claim in excess of deductible = $50,000 1st dollar trend = 13.5%
  • 2008 Ground-up claim = $113,500 ($100,000 * 1.135) Specific deductible = $50,000 Claim in excess of deductible = $63,500Trend on excess portion of claim = 27% ($63,500 / $50,000 – 1)
sample stop loss data request
Sample Stop Loss Data Request
  • Description of Employer Group – name, address, # Ees, nature
  • Requested Stop Loss Contract – effective date, specific deductible, maximum limits, contract type (12/15), services to be covered (medical/Rx), coverage desired (specific & aggregate or spec only.)
  • Groups current coverage including in-force deductible, rates & factors, carrier and TPA name.
  • Large claim report with claims paid or pending in excess of 50% of specific deductible requested including diagnosis/prognosis.
  • 2-3 years first-dollar claim and enrollment history.
  • Current census listing of all participants under the plan.
  • Current plan document and schedule of benefits
  • Managed Care information including PPO network, utilization review, case management, disease management, etc.
websites to know
Websites to Know!

• Self-Insurance Institute of America (

• Society of Professional Benefit Administrators (

• MyHealthGuide LLC (

• SOA Reinsurance Section Council (

growth in the mini med markets
Growth in the Mini-Med Markets
  • Another approach to consumerism
  • Also referred to as Limited Benefit Medical Plans
  • Develop affordable benefits for part time employees
    • Premium: 25-60% of traditional health benefits
    • Covers costs of 20-50% of traditional benefits
    • Popular with food chains, blue collar industries, nursing, other
  • Part-time populations have administrative challenges (volatile group)
    • Significantly more administration is required
    • May process premium weekly or monthly
mini med markets cont
Mini-Med Markets (cont.)
  • Benefit offerings focused on either catastrophic benefits or preventative care (both not an option)
  • Benefits may be associate-pay-all with no company subsidy.
  • Coverage available on self-funded or fully insured basis only. 
    • Fully insured carriers may buy reinsurance (e.g., quota share, aggregate)
    • Buyer of coverage (employer) typically prefers fully insured
    • Structure proposals so that the costs of development are included in premium rates:
      • enrollment material (brochures)
      • call center enrollment,
      • mailing of material (e.g., ID cards, SPDs/plan documents)
medicare market baby boomers humana winter 2009 newsletter
Medicare Market – “Baby Boomers”(Humana: Winter 2009 Newsletter)
  • Start Collecting Social Security Benefits (SSB)– Feb 2008
  • 2008 – 3.2 Million turn 62 (365 per hour)
    • Half Expected to retire early and draw 75% of SSB
  • 80 Million to qualify for SS & Medicare over next 22 Yrs
  • 2011: First group turn 65 and become Medicare Eligible
  • 2012: Boomers that do not retire early turn 66 and become eligible for full benefits
  • 2020: People ages 55-65 projected to increase 75%
  • 2030: People > 65 expected to double
  • 2050: People > 85 expected to grown by 382%
examples of reinsurance in ny
Examples of Reinsurance in NY
  • Stop Loss Insurance
  • A&H Reinsurance – Quota Share, Portfolio Excess, etc.
    • Minimum ceding company retention of 10% required.
  • Medicaid – State reimburses plans for low birth weight (premature) babies
  • Healthy NY - State-subsidized reinsurance arrangement
    • Reimburses health plans for 90 percent of claims paid between $5,000 and $75,000 on behalf of a member in a calendar year.
    • All HMOs are required to write Healthy NY
regulations in ny
Regulations in NY
  • Regulations – Each state regulates domiciled cendents (reinsureds), but NY is extraterritorial
  • Sample Reinsurance Regs
    • 125 - Credit for Reinsurance from Unauthorized Insurers (17, 20, 20-A)
    • 126 - Trust Agreements (114)
    • 127 - Reinsurance Transactions by Authorized Life Insurers and Certain Other Authorized Insurers (102)
    • 128 - Commutation of Reinsurance Agreements (141)
  • Stop Loss – Sample Requirements
    • Requires filing of policy forms with specific language (e.g., claims payment, etc.)
    • Minimum individual deductibles: $25k for new business; $20k for renewals
    • Minimum loss ratios: 65% for Accident & Health
    • Rate methodology (actuarial items) require prior regulatory approval
ny regs for amounts withheld
NY Regs for Amounts Withheld

Regulations 17, 20 and 20-A, at 11 NYCRR § 125.6 provide specific detail as to the type of arrangements that constitute “amounts withheld” under a reinsurance treaty that will enable a ceding insurer to take credit on its balance sheet for reinsurance obtained from an unauthorized reinsurer. 11 NYCRR § 125.6(b) provides, in pertinent part, as follows:

  • (b) Other than as permitted pursuant to section 125.4(e), (f) or (g) of this Part, credit taken by a ceding insurer for reinsurance ceded to an unauthorized insurer, which is not an accredited reinsurer, shall not exceed the amounts withheld under a reinsurance treaty with such unauthorized insurer as security for the payment of obligations thereunder, provided such funds are held subject to withdrawal by, and under the control of the ceding insurer. Amounts withheld include:
    • (1) funds withheld for which the ceding insurer has set up a liability;
    • (2) letters of credit complying with Part 79 of this Title (Regulation 133); and
    • (3) funds deposited in trust agreements complying with Part 126 of this Title (Regulation 114).
Tip: Visit New York State Insurance Department website and search under “Reinsurance” to find circular letters and opinions.
financial reinsurance structured risk finance proposed structures
Financial Reinsurance/Structured Risk Finance - Proposed Structures
  • Quota Share
    • Use of experience refunds, sliding scale commissions
  • Aggregate
  • Letter of Credit
  • Surety Bond
  • Parental Guarantees
    • “Keepwell” Agreement
key issues with financial reinsurance
Key Issues with Financial Reinsurance
  • The “10/10” Rule
    • Under FAS 113, this rule states that a contract passes the threshold if there is at least a 10 percent probability of sustaining a 10 percent or greater present value loss (expressed as a percentage of the ceded premium for the contract).
  • “Side agreements”
  • “One day deal” arrangements
challenges for reinsurers in finite financial reinsurance product line
Challenges for Reinsurers in Finite/Financial Reinsurance Product Line
  • Management expectations for “consistent” profits balanced w/ comfort level of type of product
  • Competing for capital with true-risk product lines
  • Developing new products to meet reinsurance needs with limited data availability/accessibility
  • New & Changing Regulatory Environment
  • Risk Transfer – Does this meet the “10/10” rule?
  • Addressing any political concerns of entering into product lines that may not be favored by senior management
  • Potential FAS 106 or GASB 45 Solutions for OPEB
Open Discussion – Questions

Will financial position of reinsurance market improve?

Impact of the subprime

Other lines of business exposures (e.g., Hurricanes, etc.)

Is the “sins of the past” still haunting people today?

Is a shrinking market for these types of coverage a concern?

Impacts of regulatory market (risk manager conservatism)

Will health plan/HMO consolidation result in fewer or different opportunities?

Federal Healthcare Reform

thank you
Thank you

Michael L. Frank, ASA, MAAA, FCA

President & Actuary

Aquarius Capital

Phone: (914) 933-0063


Donald J. Rusconi II, CFA

Vice President & CFO

Aquarius Capital

Phone: (203) 458-1495



(Visit “Aquarius in the News” on Websites)