Query on UPR

[Lewin]

Hi Guys,

Lets assume a class of insurance is on an XOL Treaty, and the UPR as at 31-12-2018 is $ 2.1 M.
The company changes its reinsurance arrangements for 2019, and enters into a 50% Quota share treaty on the same class of business.
The quota share has the company transfer 50% of premiums written in 2019, and 50% of claims paid in 2019.
On 01-01-2019, can we assume the UPR is now 50% of the end year UPR? [The $2.1M]

 

[Busy_Bee4422]

I read the part written in 2019 as if the qouta share treaty is a risks attaching during 2019 therefore the risks with the 2.1m UPR may not be covered under the new reinsurance. Is the more information in the question?

 

[Lewin]

I read the part written in 2019 as if the qouta share treaty is a risks attaching during 2019 therefore the risks with the 2.1m UPR may not be covered under the new reinsurance. Is the more information in the question?

Hi Zivanaik,
This is not a past exam question, this is a treaty i've been requested to provide advise on. The terms of the treaty are that the reinsurer will collect 50% of premium written by the insurer in 2019, and will pay 50% of total claims paid in 2019.
My initial thought was that claims paid in 2019 will also relate to claims incurred prior to 2019 and hence one can release 50% of UPR since reinsurer will pay 50% of claims incurred in 2019 for policies in force at the start of the year?
There is no premium transfer to reinsurer for the policies in force at start of 2019.

 

[mugono]

Hi Zivanaik,
This is not a past exam question, this is a treaty i've been requested to provide advise on. The terms of the treaty are that the reinsurer will collect 50% of premium written by the insurer in 2019, and will pay 50% of total claims paid in 2019.
My initial thought was that claims paid in 2019 will also relate to claims incurred prior to 2019 and hence one can release 50% of UPR since reinsurer will pay 50% of claims incurred in 2019 for policies in force at the start of the year?
There is no premium transfer to reinsurer for the policies in force at start of 2019.

I think it’s important to be clear in your mind whether the reinsurance covers business currently in-force and / or new business (only).

The distinction is important in determining whether the reinsurer is on risk for claims incurred in 2019 for business written in the past or not. The current UPR (and XL arrangement) would appear to be held in respect of business written before 2019.

My suggestion would be to confirm whether the QS arrangement relates only to business written from 2019 or not (eg speak with someone involved with the treaty drafting). Ask for a copy of the final treaty terms if you don’t have a copy yet and see what is says ref business / cohort covered. Speak to someone in your team who has reviewed similar treaties in the past. In other words, utilise your network.

It’s generally prudent to minimise the number of assumptions made, particularly where there is a definitive answer .

It’s difficuit to be more specific given the information presented. But hopefully you find it useful.

Good luck.

 

[Lewin]

I think it’s important to be clear in your mind whether the reinsurance covers business currently in-force and / or new business (only).

The distinction is important in determining whether the reinsurer is on risk for claims incurred in 2019 for business written in the past or not. The current UPR (and XL arrangement) would appear to be held in respect of business written before 2019.

My suggestion would be to confirm whether the QS arrangement relates only to business written from 2019 or not (eg speak with someone involved with the treaty drafting). Ask for a copy of the final treaty terms if you don’t have a copy yet and see what is says ref business / cohort covered. Speak to someone in your team who has reviewed similar treaties in the past. In other words, utilise your network.

It’s generally prudent to minimise the number of assumptions made, particularly where there is a definitive answer .

It’s difficuit to be more specific given the information presented. But hopefully you find it useful.

Good luck.

Thank You Sir,

This was very helpful. I am currently reviewing the actual treaty in order to confirm assumptions raised.