ST2 CMP Ch26 Reinsurance

Page 10
One of the general factors: Existence of profit sharing arrangement in reinsurance treaty.
Besides sharing premium and commission, how does profit sharing work?

Page 21
What is experience refund agreement?

Solution 26.10
Under normal risk premium arrangements, … recurring single premium …, insurer holds all of policy reserve.
Why doesn’t the reinsurer hold any policy reserve?

Thanks for the help in advance!

 

1. terms could be set up that return a portion of the reinsurer's profit (calculated on a prescribed basis) to the insurer.

2. experience refund is the same idea = profit share

3. hmm - not convinced either but see what they're getting at. With RP you're only reinsuring the mortality risk. And on a recurrent SP basis it's one year at a time. Insurer will have to hold reserves for any future maturity benefit, which is likely to dwarf any small reserve for the mortality cover. The reinsurer doesn't just hold whatever the insurer isn't holding. It would need to look at its liabilities and decide what it needs to hold. No doubt it would have to hold some reserve for the cover it has given.