• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Gearing Effect of RI

G

GIstudent57

Member
Hi,

Can someone explain the gearing effect of reinsurance? It was briefly mentioned at a tutorial and I have also seen it mentioned in the ASET solutions. For example, in Q4 of the April 2021 sitting which was based around injury discount rates.

Following a significant change in discount rates, "reinsurance will need to be reviewed, and the cost of it may increase, particularly so for XoL due to the gearing effect".

Thanks
 
It's a generic term, just referring to the fact that an increase in a very large claim will hit the reinsurer 100% (as the claim is already large), whereas an increase in a smaller claim will hit an insurer but eventually will also hit the reinsurer and so may not turn out as bad for the insurer.
 
Back
Top