I am not sure I understand the nature of "deposits back". The reinsurer deposits back it's share of reserves and the cedant retains the investment income on that reserve as well as profits from the release of that reserve? Why would this make sense? Does anyone know if this arrangement exists in Israel?
Hi, Whenever an insurer sets up a reinsurance contract, the insurer bears the risk that the reinsurer goes bust. If the reinsurer does go bust, the insurer still has the full liability of the sum assured to the policyholder. Therefore, any reinsurance contract introduces some counterparty risk for the insurer. Consider the example that an insurer reinsures a £100k endowment assurance contract using a quota share agreement with a 90% retention limit. On maturity or earlier death, the reinsurer would have to pay 90% of the claim. During the contract, whatever reserves are built up on the policy, the insurer asks the reinsurer to contribute 90% of the reserves. That way, if the reinsurer goes bust, the insurers already have the reinsuers contribution to the reserves. I hope that makes sense! Another benefit of deposits back is that the reinsurer does not have to worry about matching the investment strategy of the insurer for with profits contracts. I am not sure how much this is used in Israel. Thanks
