1 / 54

INTODUCTION TO REINSURANCE

INTODUCTION TO REINSURANCE. NOLAN ASCH CAS RATEMAKING SEMINAR INT-7. INSURANCE. The insurer insures the individual or the corporation. REINSURANCE. The REINSURER insures the insurance company. REINSURANCE PLACEMENT MECHANISMS. DIRECT BROKER. INSURANCE vs. REINSURANCE.

smallf
Download Presentation

INTODUCTION 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. INTODUCTION TO REINSURANCE NOLAN ASCH CAS RATEMAKING SEMINAR INT-7

  2. INSURANCE The insurer insures the individual or the corporation

  3. REINSURANCE The REINSURER insures the insurance company

  4. REINSURANCE PLACEMENT MECHANISMS DIRECT BROKER

  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 WTC) • 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. FUNCTIONS OF REINSURANCE • CAPACITY • CATASTROPHE • STABILIZATION

  13. STABILIZATION Reduction in Variance (swings)

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

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

  16. FINANCINGReducing Liabilities Ceding Commissions “Overrides”

  17. FINANCING May increase PHS due to transaction

  18. FINANCING Finite Reinsurance...... but ALL Reinsurance is Financial

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

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

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

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

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

  24. How Reinsurance Is Pricedin Practice Hypothetical Examples

  25. NO PRICE REGULATION • (virtually)

  26. CASE BY CASE

  27. NEGOTIATION

  28. FLEXIBILITY IN STRUCTUREContractual

  29. EXCESS OF LOSS

  30. LAYERING

  31. $19.75 Mill xs $0.25 Mill (sounds like a wide layer)

  32. 250 xs 250 500 xs 500 1M xs 1M 3M xs 2M 5M xs 5M 10M xs 10M Price A Price B Price C Price D Price E Price F TYPICAL LAYERING

  33. High Frequency/ Low Severity Buffer layers ie 250 xs 250

  34. LOW FREQUENCYHIGH SEVERITY Capacity Layers ie 10m xs 10m

  35. CLIENT/BROKERNEGOTIATION Change or resubdivide the layering

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

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

  38. PRICING TRAPS • AGGREGATE ANNUAL DEDUCTIBLES

  39. 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

  40. INFORMATION FOR PRICING NO standards

  41. WHAT THE REINSURER WANTS EVERYTHING

  42. WHAT THE BROKER/CLIENTMAY WISH TO SUPPLY NOTHING

  43. POSSIBLEOUTCOMES

  44. GIGO Garbage-In Garbage-out

  45. EL NIÑO

  46. NINO Nothing-in Nothing-out

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

  48. STANDARD All losses at half the attachment point & up

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

  50. EXPOSURE RATINGAttempt to rate Reinsurance based upon the TRUE underlying exposures Proxies for TRUE exposures: Limits Profiles = Subject Premium by policy limit Exposures by policy limit ( still not the TRUE exposure)

More Related