T
Trevor
Member
Hi, I am trying to understand a point on Question X5.7 part (iii) of the 2019 version of Series X assignment.
The question is what type of reinsurance is suitable for a unit-linked critical illness (CI) contract. The solution for this is that individual surplus reinsurance will be used.
How does this work? The payout for a unit-linked contract will be the unit fund value. In such case, whether the claims are within or above the retention limit depends on the fund value, which depends on the premium paid. From the reinsurer's perspective, a policy will switch from "not-covered" to "covered" simply because the fund grew beyond the retention limit.
If the retention limit is actually applied on the sum at risk instead of claim amount, then the policy needs to have a minimum benefit guarantee to have a sum at risk.
Also related to this question:
How do we have a combination of an individual surplus(IS) and original terms(OT) reinsurance?
My understanding of original term reinsurance is that, the premium is split between the cedant and reinsurer, in the same portion as the claims.
ie: premium split % depends on claim split %
So if we have IS and OT, our claim percentage will be retention level/Claim amount, and then the premium will split based on this percentage. This means each policy will have a different % split of premium depending on their sum assured. Is this correct?
I always assumed OT has to be paired with Quota Share (QS), so that the premium and claims will always be the same percentage (R%).
Does a QS reinsurance automatically imply the premium has to be split by the same R%, or it only specifies R% split for claims but premium splitting depends on whether it is OT or RP (Risk Premium)?
Best Regards,
Trevor
The question is what type of reinsurance is suitable for a unit-linked critical illness (CI) contract. The solution for this is that individual surplus reinsurance will be used.
How does this work? The payout for a unit-linked contract will be the unit fund value. In such case, whether the claims are within or above the retention limit depends on the fund value, which depends on the premium paid. From the reinsurer's perspective, a policy will switch from "not-covered" to "covered" simply because the fund grew beyond the retention limit.
If the retention limit is actually applied on the sum at risk instead of claim amount, then the policy needs to have a minimum benefit guarantee to have a sum at risk.
Also related to this question:
How do we have a combination of an individual surplus(IS) and original terms(OT) reinsurance?
My understanding of original term reinsurance is that, the premium is split between the cedant and reinsurer, in the same portion as the claims.
ie: premium split % depends on claim split %
So if we have IS and OT, our claim percentage will be retention level/Claim amount, and then the premium will split based on this percentage. This means each policy will have a different % split of premium depending on their sum assured. Is this correct?
I always assumed OT has to be paired with Quota Share (QS), so that the premium and claims will always be the same percentage (R%).
Does a QS reinsurance automatically imply the premium has to be split by the same R%, or it only specifies R% split for claims but premium splitting depends on whether it is OT or RP (Risk Premium)?
Best Regards,
Trevor