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Published byBarrie Perkins Modified over 8 years ago
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OESAI COMPREHENSIVE LIFE INSURANCE TECHNICAL TRAINING
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Reinsuring Small Limited-Underwriting VS
Reinsuring Small Limited-Underwriting VS. fully Underwriting large amount policies OESAI COMPREHENSIVE LIFE INSURANCE TECHNICAL TRAINING Ezekiel Macharia Group Actuary - Jubilee Holdings Limited Day 1, Wednesday 11th November, 2015
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AGENDA Components of premium Policy Characteristics
Claim Characteristics Role of Reinsurance Facultative vs Treaty Quota Share Surplus Excess of Loss Conclusion
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Components of premium Profit is usually based on hurdle rate of company (10% - 30%) depending on risk free rate
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Reinsurance renewals??
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Impact of reinsurance The more you reinsure the more profit you give away? Why reinsure?
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Policy Characteristics
Small Limited Underwriting Large – full underwriting Micro Life Insure all lives in Tanzania (50m) for $100 = $5b Key man Insure 100 for $50m each = $5b Mass Market All demographics are covered High Net Worth (HNW) A portion of the demographics Law of Large Numbers Works Law of Large Numbers May not work Many claims Administrative costs can be a key cost Few claims Administrative cost are not significant Reinsurance (Quota Share, Surplus, XOL)
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Claim Characteristics
Small Limited Underwriting Large – full underwriting Regular claims per month Using a claim distribution with a incidence rate of 3 per mille Limited or no claims With 100 lives a chance of no claim is possible
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Role of Reinsurance Risk Transfer (both cases)
Mitigate losses (stability) Increase capacity (insure more clients) Strengthen balance sheet (confidence) Technical support (underwriting large & complex individual risk)
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Reinsurance Treaty: Relationship (like a marriage) Pre-negotiated
No-individual underwriting Facultative: Can be one-off no obligation on both sides
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Quota Share A proportionate share of the premium and claims
For example, the reinsurer receives 30% of premium and pays 30% of claims
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Quota Share Example: Insurer pays 70%, Reinsurer pays 30% of claims
Reinsurer follows the fortunes of the insurer
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Surplus A proportionate share of the premium and claims subject to a maximum proportion per claim
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Surplus Example: Insurer pays 70% (maximum - $10m), Reinsurer pay 30% of claims Insurer is more protected
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Excess of Loss Pays claims beyond a certain limit
For example, claims beyond $100m are paid by reinsurer. The reinsurer may give a limit of claims they will pay and the additional claims reverts to the insurer.
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Excess of Loss Example: Reinsurer pays claims above $100m – subject to a maximum of another $100 – claims above $200m revert back to insurer
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Conclusion Reinsurance is important to provide capacity and training to large risks Limited underwritten polices require bulk reinsurance like Excess of Loss & Quota Share Fully underwritten policies tend to be large and require surplus reinsurance in addition to excess of loss Reinsurance has a cost
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? QUESTIONS
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