Non - proportional reinsurance

[Emma Spencer]

Morning

I have 2 questions:

1)

Please can someone explain the core reading below:

"Proportional reinsurance can be used to spread risk and to reduce pro rata the size of the risk retained. However, this does not cap the cost of very large claims...."??? I thought this was what surplus reinsurance does??


2) The core reading says that the excess points are expressed as a % of the cedant's premium income for that account.
But then it says that cover might typically be given from an excess point of 100% claims ratio up to an upper limit of 130%....so what is it premium or claims?

Thank you

 

[mattt78]

1)
Please can someone explain the core reading below:
"Proportional reinsurance can be used to spread risk and to reduce pro rata the size of the risk retained. However, this does not cap the cost of very large claims...."??? I thought this was what surplus reinsurance does??

2) The core reading says that the excess points are expressed as a % of the cedant's premium income for that account.
But then it says that cover might typically be given from an excess point of 100% claims ratio up to an upper limit of 130%....so what is it premium or claims?
Thank you

Emma

1)
You must remember surplus ri is still proportional ri - every claims is shared is a predermined split between insurer and reinsurer, from the first pound to the last pound. So it does not 'cap' large losses as excess of loss (i.e. non-proportional) ri does. With xol ri, once the claim reaches a certain size it passes entirely to the reinsurer.

However, by ceding a share to a proportional ri treaty, the insurer is reducing its net (of ri) limit. E.g. a policy with a £5m limit, ceded 50% to a QS (or under a surplus), reduces the insurers net line to £2.5m. That's what the first sentance is getting at.

2) I assume you're referring to a stop loss here. A claims ratio is just expressing claims as a proportion of premiums, so in your example, the stop loss would cover claims from 100% to 130% of premiums, which is equivalent to saying it covers claims from 100% - 130% claims ratio

 

[Walter Pearson]

Hi Emma

Are you sorted with this?

(1)

Surplus reinsurance is the same as excess of loss reinsurance if the benefit amounts vary. A retention limit is set, and the reinsurer covers all above this limit.
For fixed benefit amounts, it is quota share reinsurance, because the proportion covered by the reinsurer stays constant for all claims.

So I think you have a very good point !!! - don't know what the answer is though...

(2)
where is this core reading? - I will have a look, and who knows...