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Comprehensive Guide to Loss Portfolio Transfers: Modeling, Contract Features, and Reasons for Buying

Explore the intricate world of loss portfolio transfers, including modeling considerations, contract features, and reasons for purchase. Learn about various aspects such as risk transfer, reserve adequacy, financial calculations, commutation options, modeling approaches, and more.

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Comprehensive Guide to Loss Portfolio Transfers: Modeling, Contract Features, and Reasons for Buying

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  1. Random ThoughtsOnLoss Portfolio Transfers Bryan Ware CAS Fall Meeting - 2001

  2. Loss Portfolio Transfers • Reasons for Buying • Some Contract Features • Modeling Considerations

  3. Loss Portfolio Transfers • Reasons for Buying • Exiting a Line or Segment of Business • Protecting the Runoff of the Book • Risk Transfer & Reserve Adequacy

  4. Loss Portfolio Transfers • Reasons for Buying • Realize Discount • Use of Offshore Paper • Fund other Activities (segregated surplus generation) • Facilitate Merger or Acquisition

  5. Loss Portfolio Transfers • Contract Features • Full Loss Portfolio Transfer or Adverse Development Cover • Maximum Economic Loss • Contractually Agreed Net Present Value Amount of Maximum Loss • Calculate by Discounting Actual Cash Flows

  6. Loss Portfolio Transfers • Contract Features • Commutation • Mandatory vs. Optional • Maintenance Fees • Start after pre-determined number of years • Hard to determine needed amount • Encourages Commutation

  7. Loss Portfolio Transfers • Contract Features • Use of Sublimits • Security • Funds Transferred or Funds Withheld • Letter of Credit or Trust

  8. Loss Portfolio Transfers • Modeling Considerations • Aggregate Distribution • For Per-Occurrence Excess coverage, use Fast Fourier Transform with variety of curves • For Ground-up, use Lognormal • Reasonability checks – is this the right curve

  9. Loss Portfolio Transfers • Modeling Considerations • Expenses • High Up-front Cost • Varies with Outcome • Not Proportionally

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