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Financial Engineering

C

Cathy

Member
I'm confused about some of the Financial Engineering products described in Chapter 3.

Firstly, how is Adverse Development Cover different from standard aggregate XoL or Stop Loss reinsurance?

Secondly, how is a run-off solution different from a Loss Portfolio Transfer?

Can anyone provide some examples to help me understand these differences?

Thanks
 
My understanding is that ADC covers the insured against an adverse development in the reserves (i.e. beyond their current reserved level) of an old book of business (i.e. business that is already written and off risk). In contrast aggregate XoL/SL would cover the current year. I could be wrong - I'm sure Ian will be along soon to correct me if so.

The LPT vs RO solution was answered here.

I think the course notes are (or at least were) based on a Swiss Re publication: The Picture of ART.
 
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1234 is absolutely right. An ADC is like a stop loss that covers more than one year's-worth of business.
 
Thanks for helping me 1234 and Ian. I'm clear now (at least on this!)
 
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