1. Life & Health Reinsurance
An introduction
Parker Crosby, Ben Berning, Kaitlyn Pedersen

2. Agenda What is reinsurance? What is life insurance?
What is it like to work in reinsurance?
Agenda

3. Insurance for insurance companies.
What is reinsurance?
Insurance for insurance companies.
“The primary insurance risks…are mortality, investment, persistency, and expense risk. Reinsurance allows one insurance company to pass some or all of these insurance risks to another insurance company.”
Life Insurance Products and Finance
by David B. Atkinson, FSA & James W. Dallas, FSA

4. How does reinsurance work?

5. Benefit of reinsurance to consumers and society
Risk diversification
Law of large numbers
Provides protection
Reinsurers help set assumptions
Capital efficiency
Income smoothing
Reduces price
Start with one house and tornado. What price would you charge? (1% chance in a given year for a 100k house)
Would it be too risky?
What about a whole city? (1000 houses)

6. Unique aspects of life insurance
Two main types of insurance products
Protection products (Term insurance)
Savings and wealth accumulation products
Underwriting
Health is evaluated (medical tests, history…)
Premium charged depends on health
Future changes (Big data, Non-invasive)
Protection products provide financial assistance when an adverse unforeseen event occurs which leads to the death, disablement or impairment of the person insured. Protection products do not always result in a claim and therefore the premiums for these policies are lower and they accumulate less value and are generally smaller than savings products. Protection policies therefore provide a relatively cheap way for people to provide financial protection for themselves or their dependents.
Savings are very important in life insurance and form a large part of the overall insurance industry. Savings products always result in a claim payment being made to the life insured. The savings will be returned either at the end of the contract, on the death of the insured life or if the insured decides to cash the policy in early.
In the past criticism has been made of the sales approach for life insurance saying that "life insurance is sold, not bought". One argument to support this saying is that many people do not understand the need for life insurance and therefore do not buy it. This leads to relatively low insurance protection compared with the need for insurance. This is a key issue for the life insurance market worldwide and one that many companies, including Swiss Re are trying to address.
Before moving onto other forms of distribution, let's quickly cover different types of agents - tied (career) and independent. Tied agents sell for one company only. Independent agents sell for multiple companies.
A different distribution channel - possibly with simpler products - is bank assurance, which has become very popular in certain countries.
There are other means, like mass marketing or direct mail for low levels of cover. These are offers you get in the mail which you can accept or reject, and may be an efficient way to sell insurance.
Some companies have more than one distribution channel. They may have an agency system plus mass marketing.

7. Life insurance is a long term business
Even short term plans can cover long periods, for example the most popular term product is 20 year term
Whole Life policy pays on the death of the life insured whenever it occurs in the future.
Direct companies cannot cancel the policy, so they expect the same from a reinsurer
why do you think T20 is so popular

8. How does reinsurance work?
Indemnity vs. Assumption
Automatic vs. Facultative
Excess vs. Quota Share
Retention example
Types of Reinsurance Contracts
Coinsurance vs. Yearly Renewable Term (YRT)

9. Indemnity vs. Assumption
Policyholder has no contractual relationship with the reinsurance company
Contractual relationship between the insurance company and reinsurer remains
Reinsurer reimburses ceding company for claims
Indemnity reinsurance
The permanent transfer of insurance liabilities
Reinsurer takes over direct companies role
Essentially the sale of a company or block of business
Assumption reinsurance
Indemnity – contractual relationship between insured & insurance company remains, reinsurer reimburses ceding company for claims
Assumption – permanent transfer of liabilities as in sale of a company or block of business

10. Automatic vs. Facultative
Automatic reinsurance
Business meets predetermined characteristics
Reinsurer must accept reinsurance of those policies
Terms predetermined in a treaty
Facultative reinsurance
Voluntary (shopped) or policy doesn’t meet automatic requirements (capacity)
Terms negotiated separately for each policy
Reinsurer underwrites the risk

11. Excess vs. Quota Share
With an Excess / Quota Share treaty, the ceding company retains a constant dollar amount / percentage of each policy up to a maximum.

12. Retention example
Maximum client retention is $1,000,000 for both Excess and QS
Quota share is 40%
Policy Size
Retention
Reinsurance
Excess Share
$500,000 $0
$2,000,000
$1,000,000
Quota Share
$200,000
$300,000
$800,000
$1,200,000
Bonus example: If it were a 60% quota share the retained amount would not be $1,200,000 but $1,000,000 (the maximum client retention).

13. Coinsurance vs. YRT Coinsurance YRT Risk sharing
Reinsurer shares in all risks of the policy
Reinsurer shares in mortality risk only
Reinsurance premium
A proportionate share of the original policy premium
Typically follows mortality pattern (not policy premiums)
Reinsurance payment
Portion of claims and expense reimbursement
Portion of claims
Rate guarantee
Guaranteed to the same extent as original policy
Not typically guaranteed
Other
Ceding company gets a credit for the reserves held by the reinsurer

14. Protection against adverse fluctuations
Insurers are concerned with both the number of claims and the total amount of claims payments
Level of claims will vary greatly by product type, underwriting, and market
An insurer will set its retention so that it will not risk insolvency as a result of adverse claims experience
* On a sample portfolio of 1000 lives, one might expect 2 deaths
* Actual death claims can vary greatly from expected
* Retention is the amount up to which a company will keep all or a portion of its risk. Beyond that point it will cede all of its risk to a reinsurer.

15. Setting assumptions
Reinsurers can help clients determine the cost of the underlying risk being covered
Experience studies
Protective value studies
Research
Alignment with underwriting practices
Alignment with claims processes
Internal/external statistics: We have a large amount of data, in some cases even more than the SOA.
Experience studies: Provide value to the client but also serves us in better knowing the risks we’re taking on when pricing. (Mortality Tours)
Protective value studies: Weigh the cost/benefits of adding UW exams.
Research: Often highlighted in previously mentioned publications.
UW and Claims alignment: Clients like to know how they’re doing but we also take it into consideration in our pricing.

16. What is Reinsurance work like?
Life Insurance
Reinsurance
Consulting
Day to day work experience
Pricing
Client Markets
Valuation
Experience Studies

17. General advice How do you know if actuarial science is the right fit?
Attend company presentations
Interview and ask questions
Take an exam or two
Job shadow

18. Questions?

19. Thank you