I have a few doubts related to the topic of reinsurance:
- In the above example, we have discussed about earning investment profits at the expense of the insurer. You have given the example that insurer has to pay substantial premiums for example 20,000 which will cause a reduction in assets. But how is it sharing the investment surplus is confusing me?
- What is the major difference between catastrophe and stop loss reinsurance?
- I have doubt with the solution of Question 24.4(Part ii and iii). Here it is mentioned that "On the other hand the value of the future repayments is reduced in the embedded value calculation by discounting them back at the RDR reflecting the possibility that they will not be paid." What is the meaning of the above lines?
- It is also mentioned that "Once again, this points to the exchange of cash for profits to be broadly consistent, especially if we were to value everything in the market consistent way". I don't understand where the concept of cash come in here and how is it related to market consistent way?
- In the iii) part it is mentioned that, "With this reinsurance part of profit has been converted to current cash, making it certain. Again I don't understand the cash concept here.
- In catastrophe reinsurance the aggregate losses are arising from a single event and is therefore designed to cover the risks from non-independent claims. How is it non-independent if the claims occur perhaps due to an industrial accident. Wont the claims be due to same cause and hence dependent?
Last edited by a moderator: Apr 3, 2022