Q and A Q3.3

[SABeauty]

This question asks about reinsurance in a mutual writing WP and non WP business.

1. If the NWP is written in WP fund - can we actually use surplus relief reinsurance? Since then arising surplus's are paid to reinsurer and not WP p/h

2. If NWP is not in the WP fund - who "owns" this. Can we still use surplus relief?

 

[Iori_]

1. Depends on the PH/SH split of profits. For example, if 90/10 then theoretically possible but the amount of capital raised under Peak 1 is likely to be small.

2. VIF arising from NWP will be 100% SH owned. So surplus relief is possible.

 

[SABeauty]

1. Depends on the PH/SH split of profits. For example, if 90/10 then theoretically possible but the amount of capital raised under Peak 1 is likely to be small.

2. VIF arising from NWP will be 100% SH owned. So surplus relief is possible.

But it is a mutual...

 

[Iori_]

Oh, sorry I missed that.

Reinsurer will be concerned about the amount of discretion that the insurer has in terms of releasing profits. The more the discretion the insurer has, the less certain reinsurer will be of receiving their portion of premiums/profits.

So for NWP outside WP fund, there is less discretion which the insurer has, and hence surplus relief is likely to be available.

For NWP inside WP fund, insurer has discretion to change the e.g. 90/10 split and hence can still exercise discretion (although subject to PPFM). So surplus relief is less likely compared to NWP outside WP fund.