In the context of LPTs, one of the disadvantages is "The transfer may require the buy-in of reinsurers where there are existing reinsurance arrangements covering the portfolio." Would you pls explain what this means?
Hi there This is probably best explained by a simple example. Suppose Company A has a book of business reinsured by Company B. Suppose further that Company A has agreed a LPT with Company C for the book of business in question. Under the LPT Company C will assume the rights and obligations of Company A for the book of business and Company A will have no ongoing liability for it. Now the reinsurance contracts between Companies A and B are a legal contract between those two companies and they will not necessarily transfer to Company C when the LPT takes place. Company C will be keen to ensure that these reinsurance protections remain in place after the LPT, so they will want Company A to get the "buy-in" of the reinsurer (Company B) to the LPT so that they do transfer. In practice Company A might try to commute the reinsurance with Company B before effecting the LPT.
