F
fischer
Member
Hi, can someone please explain to me the cash-flows for a "deposit back" arrangement in a reinsurance contract?
My understanding is as follows:
Consider a 3 year endowment assurance. Sum assured £750.
The insurer (L) has an original terms reinsurance contract in place alongwith the deposit back arrangement.
The insurer pays reinsurer (R) 50% of premium. In event of claim or maturity, the reinsurer will pay 50%.
At end of 1st year:
Required reserve is £250.
The insurer has £125 and the reinsurer has £125.
The reinsurer then deposits this back into the insurer's account, so the insurer has £250.
At end of 2nd year:
Required reserve is £500.
The insurer has £375 (£250 from previous year + £125 from this year)
The reinsurer has £125 (£0 from previous year + £125 from this year)
The reinsurer then deposits this back into the insurer's account, so the insurer has £250.
At end of 3rd year:
Required reserve is £1,000.
The insurer has £625 (£500 from previous year + £125 from this year)
The reinsurer has £125 (£0 from previous year + £125 from this year)
The reinsurer then deposits this back into the insurer's account, so the insurer has £750.
Q01: Is my understanding correct here?
Q02: If there is a claim, the reinsurer will pay the excess over the reserve held by the insurer, right?
Q03: What's there in it for a reinsurer if it has to payback the cedant the premiums or reserves?
My understanding is as follows:
Consider a 3 year endowment assurance. Sum assured £750.
The insurer (L) has an original terms reinsurance contract in place alongwith the deposit back arrangement.
The insurer pays reinsurer (R) 50% of premium. In event of claim or maturity, the reinsurer will pay 50%.
At end of 1st year:
Required reserve is £250.
The insurer has £125 and the reinsurer has £125.
The reinsurer then deposits this back into the insurer's account, so the insurer has £250.
At end of 2nd year:
Required reserve is £500.
The insurer has £375 (£250 from previous year + £125 from this year)
The reinsurer has £125 (£0 from previous year + £125 from this year)
The reinsurer then deposits this back into the insurer's account, so the insurer has £250.
At end of 3rd year:
Required reserve is £1,000.
The insurer has £625 (£500 from previous year + £125 from this year)
The reinsurer has £125 (£0 from previous year + £125 from this year)
The reinsurer then deposits this back into the insurer's account, so the insurer has £750.
Q01: Is my understanding correct here?
Q02: If there is a claim, the reinsurer will pay the excess over the reserve held by the insurer, right?
Q03: What's there in it for a reinsurer if it has to payback the cedant the premiums or reserves?