1. Reinsurance and Other Forms of Risk Transfer Risk Based Supervision of Reinsurers and Insurer’s Reinsurance Coverage - Case Study – Possible Responses
May 26-28, 2015
Connie Dewar, Managing Director
Life Insurance Group
Office of the Superintendent of Financial Institutions

2. Possible Responses
What are the key inherent risks in the underlying products? (focus on disability income) What assessment would you give (high/medium/low)?
Interest rate risk – long term nature of product, reinvestment risk
Insurance risk – morbidity, lapse, expenses
Operational risk – new line of business, requires different expertise to underwrite and adjudicate claims
Strategic risk – need business to improve growth
Which of these could be mitigated by reinsurance?
Insurance risk – morbidity – 80% of business has been ceded
Operational risk – new line of business, requires different expertise to underwrite and adjudicate claims – reinsurer could provide support
What risks are created by the use of reinsurance? What assessment would you give (high/medium/low)?
Credit/counterparty risk – lower for local reinsurer, higher for New Re
Operational risk – need to set up reinsurance systems/processes since did not use reinsurance much in the past
Regulatory risk – new reinsurer, contracts need to be negotiated

3. Possible Responses
How would you assess the quality of risk management of the reinsurance program? What would you consider?
Reinsurance philosophy – is it in line with risk appetite and risk tolerance?
Review process to select and evaluate reinsurer
Review processes to implement reinsurance – contract negotiation, administration, reporting, etc.
Roles and responsibilities – board, senior management, line managers
Expertise of those responsible
Appropriate oversight / independence
Review attestation program regarding compliance with reinsurance policy and guideline
Internal audit reviews and findings on reinsurance program

4. Possible Responses
What is the net risk of the reinsurance program? / How would you assess the effectiveness of the reinsurance?
Good that they assessed the need for reinsurance – don’t have expertise in disability income
Didn’t appear to do appropriate due diligence when selecting second reinsurer
Lack of independence of CRO since he made the decision to choose the reinsurer without proper due diligence
Poor governance by Board since they agreed on reinsurer without proper review
What recommendations, if any, would you give to the company?
Review reinsurance policy and procedures, specifically the due diligence process for selecting reinsurers
Ensure board receives appropriate materials to make informed decisions
Review mandate of CRO to ensure independence