Reinsurance assignment and set-off Johan Senekal Senekal Simmonds

Reinsurance pricing conditions High order losses measured in spread loss years Spread loss period vs corporate bond amort. Longitudinal price differential and shape of loss distribution NPV of reinsurance

Reinsurer credit risk VAR for reinsurance companies Costing default risk into the programme Protective mechanisms Credit spread Illusionary value adjustments

Cash flow underwriting Climate for elusive practice Acquisition cost of debt (i.e. premium) rs = u/w margin * premium/ surplus + ra *(technical/premium*premium/surplus + 1) Cash float = technical /premium Insurer leverage = premium / surplus conditioning

Moral hazard in reinsurance disconnection of premium from expected losses disconnection at high coverage in isolation vs portfolio theory approach Cost of monitoring and price controls

Dynamic Financial Analysis Integration of asset management with underwriting management DFA modeled to pricing and cover afforded by double trigger contracts (New contract) Study done by Grundl and Scheser

New contract Contract of traditional stop loss plus financial risk Insurer gauge reinsurer reservation price at time of contracting Liability cession vs premium cession Contractual pricing using financial model (default put option cost) vs actuarial model pricing

New contract The contract pay-off structure Higher coefficient of variation (up to 3x stop loss) – commensurate premium pay away Contact viability conditions Financial model: CAPM (no default assumption relaxed)

New contract NC premium = 1 / (1+rf)*[E(s) – lamda*cov(s,rm)] Lambda = market price of risk = E(rm) – rf/var(rm) s = expected loss on new contract Must adjust premium for default put option value

New contract Change insurer buying reinsurance with short-term funds (I get it you get it) Better matching Small insurers benefit from lower capital strain if reinsurer high credit rating and better investor of hedge of loss