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Explanation of reinsurance pricing terms

Discussion in 'SP8' started by sma09gc, Sep 12, 2019.

  1. sma09gc

    sma09gc Active Member


    Whilst learning acronyms I’ve come across a couple of things that I don’t really understand, and wondered if someone could explain them to me in a more simplified way:

    Stop loss - what does ‘amount of recoverable later returned by cedant’ mean?

    Risk loading - what does ‘the marginal impact on capital of writing a risk and load for the required rate of return on the additional capital required to write that risk’ mean?

    Any help greatly appreciated, don’t want to be writing things I don’t understand. Thanks!
  2. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    If you can point us in the direction of where you saw these statements, we can take a look.
  3. sma09gc

    sma09gc Active Member

    Apologies there was a typo in my original post, it should read:

    Stop loss - ‘amount of recoverable layer returned by cedant’. This is one of the important considerations when pricing stop loss on p963 of the ebook.

    Risk loading - one of the bullet points on p939 of the ebook.
  4. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    stop loss - they're talking about a participation clause / deductible. see p265 of e-book, penultimate bullet.

    risk loading - it's saying that you quantify the extra capital needed when you sell a policy, and then your risk load will reflect the extra return required on that extra capital.

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