Freihaut and Vendetti

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  1. SAP requirements for reinsurance contract
    • the reinsurer assumes significant risk under the reinsured portion of the underlying insurance agreement
    • it’s reasonably possible that reinsurer may realize a significant loss from the transaction
    • exception when reinsurer assumes substantially all of the insurance risk
  2. CEO or CFO must confirm that
    • there are no separate written or oral agreements between reporting entity and reinsurer
    • there is documentation for every reinsurance contract for which risk transfer is not reasonably self-evident, that details the transaction’s economic intent
    • reporting entity complies with all requirements set forth in SSAP 62
    • appropriate controls are in place to monitor the use of reinsurance
  3. Reasonably evident definition
    • CAS Working Party uses 1% expected reinsurer deficit (ERD)
    • preferred over the 10-10 rule (10% chance of a 10% loss)
    • XOL contract would fail 10-10 if only reimburses over 90th percentile
    • Quota share would fail if reinsurer assumes high percentage of profitable exposures
  4. Common pitfalls
    • profit commission: should not include as usually zero for big losses
    • reinsurer expenses: should be excluded as do not involve exchange of cash flow
    • interest rates and discount factors: should be reasonable and appropriate
    • premiums: should be gross before considering payback such as commission
    • evaluation date: use contract inception date
Card Set:
Freihaut and Vendetti
2014-04-12 23:53:00
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