1. Intro to Reinsurance
Prepared by TAI
Orland Park, Illinois

2. Intro to Reinsurance Why Reinsurance Types of Reinsurance
Reinsurance Plans
Risk Characteristics
Reinsurance Treaty
Reinsurance Calculations
Reinsurance Reporting

3. Reinsurance defined
Reinsurance is a risk transfer from one insurance company to another
For life insurance, risk is mortality risk
For health insurance, risk is morbidity risk

4. Why Reinsurance Product considerations
Make use of underwriting expertise
Increase capacity
Enter new markets

5. Why Reinsurance Financial considerations Spread the risk
Ease surplus strain

6. Types of Reinsurance Automatic Facultative
Reinsurer automatically accepts risk provided it meets specific criteria based on ceding company’s underwriting and issue requirements
Facultative
Reinsurer has option to accept or decline risk

7. Forms of Reinsurance Excess First Dollar
Reinsurance begins with excess of retention
First Dollar
Reinsurance begins with first dollar of coverage

8. Reinsurance Plans Yearly Renewable Term (YRT) Coinsurance (Coins)
Modified Coinsurance (ModCo)

9. Reinsurance Plans Yearly Renewable Term (YRT)
Risk premium reinsurance (RPR)
Annual renewable term (ART)
Risks transferred to reinsurer for premium, which varies each year with amount at risk and ages of insureds
No reserves transferred to reinsurer

10. Reinsurance Plans Coinsurance Proportional reinsurance
Insurer and reinsurer share obligations of coverage (death benefit, non-forfeiture values, reserves)
Reinsurance premium percent of premium insured pays (less policy fee)

11. Reinsurance Plans Mod Co
The same as coinsurance except that no reserves are transferred to reinsurer.

12. Reinsurance Risk Characteristics Age Sex Smoking Class
Insurance Amount
Insurance Plan
Underwriting Considerations (height, weight, family history, occupation, etc.)

13. Reinsurance Rules
Reinsurance
Treaty

14. Reinsurance Terms
Treaty
Retention
Cession

15. Reinsurance Terms Treaty “Gentlemen’s Agreement”
Legal contract between writing (ceding) company and assuming (reinsuring) company
Describes terms and conditions of reinsurance agreement

16. Reinsurance Terms Retention
Dollar amount or percentage of each risk retained by ceding company under reinsurance agreement
Maximum amount of coverage per life an insurer will keep at its own risk (Corporate Retention)

17. Reinsurance Terms Cession Record showing reinsurance information
Reinsurance effective date
Insured’s name, sex, date of birth, age
Reinsurance plan (YRT, Co)
Ceded amount, reinsurance NAR
Reinsurance premium, allowance, net premium

18. Reinsurance Treaty Includes
Contract related provisions (parties to agreement, termination of agreement, arbitration, errors and omission, insolvency)
Reinsurance related provisions (see next slide)

19. Reinsurance Treaty Reinsurance related provisions Plan of reinsurance
Amounts of reinsurance and related limits
Reinsurance premiums
Expense allowances, premium taxes
Claims
Continuations
Reinstatements
Recapture
Other

20. Reinsurance Treaty Does Not Include Instructions for administration
Guidelines for handling exception cases
Specifications for system design

21. Reinsurance Calculations
NAR
Premium
Allowances

22. Reinsurance Calculations
NAR – Net Amount at Risk
Methods
Ceded amount
Ceded amount less % cash value
Changes
Remain level
Proportional

23. Reinsurance Calculations
Premium
Coinsurance
Coins % times direct premium less policy fee
YRT
NAR times rate (rate based on issue age, sex, smoking class, duration, mortality rating)

24. Reinsurance Calculations
Allowances
Generally a % of premium
Could also be $ per 1000

25. Reinsurance Reporting
CO POLICY RD PLAN ISS-DATE TREATY
TAI UL /15/ AAQU1YA1
TAI T /15/94 AAQT1YA1
TAI UL10 08/20/ AAQU1YA1
TAI SUL 08/21/ BBQSLYB2
TAI T /23/ AAQT1YA1
TAI SUL 09/02/ BBQSLYB2

26. Reinsurance Reporting
Frequency – monthly, quarterly, annual
Medium – paper, electronic
Billing
New business
Renewals
Inforce
Transactions