Reinsurance Team 4: Alayne - PowerPoint Presentation

1. ReinsuranceTeam 4: Alayne Becker, Nick Chernick, Yu Fan, Sam Houseworth, Spike Knickel, Justin Newlen, Beth Sanger, Yifan Yang

2. ReinsuranceWhat is it?Reinsurance is insurance for insurance companiesIt allows insurance companies to pass some or all insurance risks to another companyParties involvedThe “ceding company” is the company that is passing the risk to the other companyThe “reinsurer” is the company accepting the risk from the ceding company

3. Net Amount At Risk (NAR)Equal to the death benefit minus the reserve.Death benefit: amount of money the company pays out when someone diesReserve: funds created for the purpose of paying anticipated claims under insurance policiesExample: If the death benefit on an insurance policy is $50,000 and the insurance company holds a reserve of $15,000 then the NAR would be $35,000.

4. Retention LimitMaximum amount willing to be lost by a company when an insured diesApplies for total net risk of all policies on one insuredDoesn’t just apply to death benefits, but also can be used with disability, critical illness, accidental death and waiver of premium benefits

5. Reinsurance TreatyWhat is it?It is the contract between the two insurance companies that lay out how the reinsurance will workIt defines which business is to be reinsured, what premiums must be paid, what benefits the reinsurer must pay, and how to handle some common problems that may occur. Two primary approaches to define which policies are to reinsuredAutomatic reinsuranceThe treaty defines which products or classes of business are to be automatically reinsuredFacultative reinsuranceThe treaty defines which policies can be selectively reinsured, one policy at a time

6. Automatic ReinsuranceThe ceding company cannot choose which policy to be reinsured, and the reinsurer must reinsure all the policies that meet the treaty. Usually 2 Different Types: Excess - Only reinsure the portion of the net amount at risk that is over the company’s retention limit.First Dollar - Also called the First dollar quota share. It is the opposite of “Excess”. Reinsure a percentage of the risk from the very first dollar of death benefit.

7. Excess vs. First Dollar

8. Facultative Reinsurance3 stepsSend underwriting information to reinsurers for reviewReinsurers review the information and decides whether or not to reinsure the risk and at what priceThe company reviews all offers. Usually "first in, best offer"  chosen.

9. RecaptureThe company takes back some of the riskIn less developed markets, often treaties give the company an annual right to recaptureRestricts use of reinsurance; viewed as a one-year agreementIn more developed markets, very restrictive recapture provisionsTypical ExamplesNot allowed or only after a certain number of yearsNot allowed unless the company kept its full retention at issueAmount limited to the increase in the company's retention limit since issueValuable option

10. Expense AllowancePaid by reinsurer to reimburse company for expenses on the business insured.Reinsurers often asked to compete on expense allowances instead of reinsurance premium rates.Usually expressed as percentages of reinsurance premiums.

11. Yearly Renewable TermPremium and death benefitYearly - premiums are paid once a year and rates might changeRenewable - Ongoing contractTerm - Only mortality risk is reinsuredYRT Premium Rates 100% of mortality or 80% of mortality and some expense allowance 0 1st year rate or lower percentage renewal years

12. CoinsuranceSimplest and Purest Form of ReinsuranceRisk is Shared from Ceding Company to ReinsurerMortality, Investment, and Persistency are Transferred to ReinsurerTwo Variations Modified CoinsuranceCeding Company Pays Interest for "Protection" from ReinsurerCoinsurance With Funds WithheldReinsurer Withholds Assets of Ceding Company, Held in a Trust