Presentation on theme: "Reinsurance Team 4: Alayne Becker, Nick Chernick, Yu Fan, Sam Houseworth, Spike Knickel, Justin Newlen, Beth Sanger, Yifan Yang."— Presentation transcript:
Reinsurance Team 4: Alayne Becker, Nick Chernick, Yu Fan, Sam Houseworth, Spike Knickel, Justin Newlen, Beth Sanger, Yifan Yang
Reinsurance What is it? Reinsurance is insurance for insurance companies It allows insurance companies to pass some or all insurance risks to another company Parties involved The “ceding company” is the company that is passing the risk to the other company The “reinsurer” is the company accepting the risk from the ceding company
Net Amount At Risk (NAR) Equal to the death benefit minus the reserve. Death benefit: amount of money the company pays out when someone dies Reserve: funds created for the purpose of paying anticipated claims under insurance policies Example: If the death benefit on an insurance policy is $50,000 and the insurance company holds a reserve of $15,000 then the NAR would be $35,000.
Retention Limit Maximum amount willing to be lost by a company when an insured dies Applies for total net risk of all policies on one insured Doesn’t just apply to death benefits, but also can be used with disability, critical illness, accidental death and waiver of premium benefits
Reinsurance Treaty What is it? It is the contract between the two insurance companies that lay out how the reinsurance will work It defines which business is to be reinsured, what premiums must be paid, what benefits the reinsurer must pay, and how to handle some common problems that may occur. Two primary approaches to define which policies are to reinsured Automatic reinsurance The treaty defines which products or classes of business are to be automatically reinsured Facultative reinsurance The treaty defines which policies can be selectively reinsured, one policy at a time
Automatic Reinsurance The ceding company cannot choose which policy to be reinsured, and the reinsurer must reinsure all the policies that meet the treaty. Usually 2 Different Types: 1. Excess - Only reinsure the portion of the net amount at risk that is over the company’s retention limit. 2.First Dollar - Also called the First dollar quota share. It is the opposite of “Excess”. Reinsure a percentage of the risk from the very first dollar of death benefit.
Excess vs. First Dollar
Facultative Reinsurance 3 steps 1.Send underwriting information to reinsurers for review 2.Reinsurers review the information and decides whether or not to reinsure the risk and at what price 3.The company reviews all offers. Usually "first in, best offer" chosen.
Recapture The company takes back some of the risk In less developed markets, often treaties give the company an annual right to recapture Restricts use of reinsurance; viewed as a one-year agreement In more developed markets, very restrictive recapture provisions Typical Examples Not allowed or only after a certain number of years Not allowed unless the company kept its full retention at issue Amount limited to the increase in the company's retention limit since issue Valuable option
Expense Allowance Paid by reinsurer to reimburse company for expenses on the business insured. Reinsurers often asked to compete on expense allowances instead of reinsurance premium rates. Usually expressed as percentages of reinsurance premiums.
Yearly Renewable Term Premium and death benefit Yearly - premiums are paid once a year and rates might change Renewable - Ongoing contract Term - Only mortality risk is reinsured YRT Premium Rates 100% of mortality or 80% of mortality and some expense allowance 0 1 st year rate or lower percentage renewal years
Coinsurance Simplest and Purest Form of Reinsurance Risk is Shared from Ceding Company to Reinsurer Mortality, Investment, and Persistency are Transferred to Reinsurer Two Variations 1.Modified Coinsurance Ceding Company Pays Interest for "Protection" from Reinsurer 2.Coinsurance With Funds Withheld Reinsurer Withholds Assets of Ceding Company, Held in a Trust