Chapter 25 - Reinsurance types

Discussion in 'SP2' started by rlsrachaellouisesmith, Mar 29, 2023.

  1. rlsrachaellouisesmith

    rlsrachaellouisesmith Ton up Member

    Hi

    Why would Original terms reinsurance be generally used if the reinsurer was providing technical assistance? I understand why a high quota share would stand but not sure why risk premium reinsurance could not/would not generally be used.

    Also in the section of the notes factors to consider on types of reinsurance to choose to use (section 2.5 of the chapter) it states that it depends on legal conditions applying. Can you give examples of what this could mean?

    And finally in the section 2.2, what difference does a profit sharing arrangement make to the retention limit. My instinct is that if there is a profit sharing arrangement then the retention limit would be lower. But I am not really sure.

    Thank you,

    Rachael
     
    Last edited: Mar 29, 2023
    rlsrachaellouisesmith, Mar 29, 2023
    #1
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi Rachael

    Quota share on an original terms basis would work well when an insurer needs a reinsurer's expertise to price a term assurance contract as the reinsurer is incentivised to get the premium right as they will be getting the same premiums. I agree though that quota share on a risk premium basis would make more sense for other business such as unit-linked.

    The course deliberately doesn't expand on the legal conditions as these will vary from country to country. But we should comply with whatever legal requirements there are. So if a particular type of reinsurance is not allowed by legislation then we can't use it.

    The smaller the reinsurer's retention the more risk it passes on to the reinsurer, but also the more profit it passes on. A profit sharing arrangement will offset this to some extent as the insurer can recover part of the upside risk on the reinsured business.

    Best wishes

    Mark

    Best wishes

    Mark
     
    Mark Willder, Mar 29, 2023
    #2

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