Hello, I have a question regarding the Sep 2020 paper, would be great if someone could help. In question 3 (iii), Describe how the premium review process could be conducted, the exam solution had one point: As reinsurance is not part of the contractual agreement between the insurer and its policyholders, any profit or loss relating to the costs and recoveries of any reinsurance arrangements will not be considered as part of the premium review exercise. Is that really true? Considering reinsurance premium is an expense to the insurer, a cost, if the reinsurance rates go up following a review by the reinsurer, surely the insurer would want to factor that additional cost into the premium they charge? Thanks
Hi Mossie Whether or not reinsurance is considered as part of the premium review will depend on the terms of the premium review process (which will need to be set out clearly for policyholders to see). The insurer would almost certainly not be allowed to recover losses that had already been incurred from the reinsurance arrangements (and I think this is the point the examiners were making). However, if reinsurance premiums were to increase, as you suggest, it may be allowed to factor these in to the premium review. I hope that helps. Sarah
Thanks Sarah. I think the solution could be clearer. Since the sentence "As reinsurance is not part of the contractual agreement between the insurer and its policyholders" is really an assumption made by the person who wrote this solution since this was not stated in the question. I hope you could feed this back to IFoA? Thanks.
