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Introduction To Reinsurance: Nolan Asch Cas Ratemaking Seminar MARCH 10-11, 2005
Introduction To Reinsurance: Nolan Asch Cas Ratemaking Seminar MARCH 10-11, 2005
INT-6
INSURANCE
The insurer insures the individual or the corporation
REINSURANCE
The REINSURER insures the insurance company
DIRECT
BROKER
REINSURANCE
Buyers assumed to be knowledgeable Responds to actual loss Provides indemnification only Reimburses for payments already made Usually Global
FUNCTIONS OF REINSURANCE
CAPACITY
CAPACITY
Single Risk (Fac - Sears Tower) PORTFOLIO (Treaty)
CAPACITY MECHANISMS
Excess-of-Loss Quota Share
FUNCTIONS OF REINSURANCE
CAPACITY CATASTROPHE
CATASTROPHE
QUOTA SHARE EXCESS OF LOSS SECURITIZATION
FUNCTIONS OF REINSURANCE
CAPACITY CATASTROPHE STABILIZATION
STABILIZATION
Reduction in Variance (swings)
STABILIZATION
Extreme contractual case STOP-LOSS Aggregate Excess
FUNCTIONS OF REINSURANCE
CAPACITY CATASTROPHE STABILIZATION FINANCING
FINANCING
Reducing Liabilities
Ceding Commissions Overrides
FINANCING
May increase PHS due to transaction
FINANCING
Finite Reinsurance...... Pre-Elliott Spitzer ALL Reinsurance is Financial Post Elliott Spitzer I dont think so.
FUNCTIONS OF REINSURANCE
FUNCTIONS OF REINSURANCE
CAPACITY CATASTROPHE STABILIZATION FINANCING ENTER AND EXIT MARKETS UTILIZE REINSURER EXPERTISE
LIMITATIONS OF REINSURANCE
Will NOT make bad business profitable Transaction Costs Rating Agency Impacts (Gross/Net)
NO PRICE REGULATION
(virtually)
CASE BY CASE
NEGOTIATION
EXCESS OF LOSS
LAYERING
TYPICAL LAYERING
10M xs 10M 5M xs 5M 3M xs 2M 1M xs 1M 500 xs 500 250 xs 250 Price Price Price Price Price Price F E D C B A
CLIENT/BROKER NEGOTIATION
Change or re-subdivide the layering
LAYER TRAP
PRICING TRAPS
POSSIBLE OUTCOMES
GIGO
Garbage-In Garbage-out
EL NIO
NINO
Nothing-in Nothing-out
EXPERIENCE RATING
Using losses of the risk to price the risk.
STANDARD
All losses at half the attachment point & up
ACTUARIAL APPROACH
DETRENDED LOSSES Varies with age of claim BEGINS to show ACTUAL CLAIMS as a sample outcome
EXPOSURE RATING
Attempt 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)
LIMITS PROFILE
$100,000 Policy Limit
Yr 1997 10% of exposures at $100,000 Yr 1998 25% of exposures at $100,000 Yr 2002 90% of exposures at $100,000
LIMIT LOSS
limit loss to 1997 policy limits or trend and develop loss beyond policy limits