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September 2007 q1 part iv

J

juvefreak

Member
Dear all. I have a question relating to

September2007 Examiners' report Q1(Iv)(c)"reinsurance of mortality risks".paragraph 2 states:
"Realistic reserves for both types of without profits business (term assurances and annuities) would increase following reinsurance, as the present value of future profits would likely reduce due to the costs of reinsurance."

I'm abit confused as I would have thought that reinsurance would reduce the reserves rather than increase them?
 
Last edited by a moderator:
Dear all. I have a question relating to

September2007 Examiners' report Q1(Iv)(c)"reinsurance of mortality risks".paragraph 2 states:
"Realistic reserves for both types of without profits business (term assurances and annuities) would increase following reinsurance, as the present value of future profits would likely reduce due to the costs of reinsurance."

I'm abit confused as I would have thought that reinsurance would reduce the reserves rather than increase them?
Click to expand...

The realistic reserve is the expected present value of the money coming in less the money going out, using realistic assumptions. We expect that the reinsurance premium will be bigger than the expected recoveries, so we are paying out more than we get in. Hence realistic reserves rise.

Best wishes

Mark
 
juvefreak said:
Dear all. I have a question relating to

September2007 Examiners' report Q1(Iv)(c)"reinsurance of mortality risks".paragraph 2 states:
"Realistic reserves for both types of without profits business (term assurances and annuities) would increase following reinsurance, as the present value of future profits would likely reduce due to the costs of reinsurance."

I'm abit confused as I would have thought that reinsurance would reduce the reserves rather than increase them?
Click to expand...

You would expect the PVFP to fall as some of the future profits arising from the release of margins throughout the run-off of mortality and longevity risks would now be transferred to the reinsurer. Remember credit is taken for the PVFP of the WP business when setting realistic reserves in Pillar 2.

Studying till 3AM is pretty hard core BTW!
 
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