D.02. Clark

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Author:
Exam8
ID:
176212
Filename:
D.02. Clark
Updated:
2012-10-08 09:46:35
Tags:
reinsurance treaty exposure umbrella xol excess loss
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Description:
Basics of Reinsurance Pricing
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  1. Reins vs primary ins
    • reins pgm more tailored to the buyer
    • pricing paradox: if you can precisely price a contract, the ceding cpy will not want to buy it
  2. Types of proportional insurance
    • quota share
    • surplus share
    • fixed and variable quota share arrangements on XS business
  3. Special features of proportional treaties
    • sliding scale commission
    • profit commission
    • loss corridors
  4. Sliding scale commission
    • % of P paid by reinsr to ceding cpy slides w actual experience subject to min / max
    • balanced plan: you can just take % associated w ELR
    • simple approach: use hist LR adj to future level
    • (-) may be distorted by hist cat or yrs w low P level
    • better approach: use agg loss dist model
    • carryforward provision: 
    • (1) include carryforward from past yrs and estimate impact on current yr only 
    • (-) ignores potential carryforward beyond current yr 
    • (2) long run 
    • (+) var of dist reduced 
    • (-) method for reducing var not obvious 
    • (-) fail to consider p(not renewing)
  5. Profit commission
    • substract actual loss, ceding commission & margin for expenses from the treaty premium and returns a % of this as additional commission
    • like sliding scale, ambiguity concerning carryforward
  6. Loss corridors
    • ceding cpy will reassume a portion of reinsr's liability if loss ratio exceeds a certain amt
    • estimate impact w aggregate loss dist
  7. Advantages of exposure rating
    • current profile is modeled
    • Salzmann centers on an exposure curve
    • treaty P = P[(R+L) / IV] - P[R / IV]
    • curve allows for exposure above IV due to addl covg
  8. Issues on property per risk treaties
    • free cover if no loss trends into higher layers. Use experience rating for lower, relativities for higher
    • credibitlity method: exp claims, annual  variation in loss cost
    • inuring reinsurance: in experience rating, restate hist loss experience; in exposure rating, select curve based on loss net of inuring, but exposure factor applied to surplus share after
  9. Casualty per occurence excess treaties
    • working layer: low layer attachment expected to be penetrated several times
    • exposed excess: attaches below some policy limits but penetrated less frequently
    • clash cover: high attachment not penetrated by single policy loss
  10. Loss sensitive features
    • annual aggreegate deductible
    • swing plan
    • (-) plan not in balance due to min / max rate
    • (-) provisional rate may be well below exp ult premium

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