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LPTs - disadvantages

R

r_v.s

Member
In the context of LPTs, one of the disadvantages is
"The transfer may require the buy-in of reinsurers where there are existing
reinsurance arrangements covering the portfolio."
Would you pls explain what this means?
 
Hi there

This is probably best explained by a simple example. Suppose Company A has a book of business reinsured by Company B. Suppose further that Company A has agreed a LPT with Company C for the book of business in question.

Under the LPT Company C will assume the rights and obligations of Company A for the book of business and Company A will have no ongoing liability for it.

Now the reinsurance contracts between Companies A and B are a legal contract between those two companies and they will not necessarily transfer to Company C when the LPT takes place. Company C will be keen to ensure that these reinsurance protections remain in place after the LPT, so they will want Company A to get the "buy-in" of the reinsurer (Company B) to the LPT so that they do transfer.

In practice Company A might try to commute the reinsurance with Company B before effecting the LPT.
 
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