Intro to Reinsurance

Prepared by TAI

Orland Park, Illinois

Intro to Reinsurance

Why Reinsurance Types of Reinsurance Reinsurance Plans Risk Characteristics Reinsurance Treaty Reinsurance Calculations Reinsurance Reporting

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

Reinsurance defined

Why Reinsurance

Product considerations

Make use of underwriting expertise

Increase capacity

Enter new markets

Why Reinsurance

Financial considerations

Spread the risk

Ease surplus strain

Types of Reinsurance

AutomaticReinsurer automatically accepts risk provided

it meets specific criteria based on ceding company’s underwriting and issue requirements

FacultativeReinsurer has option to accept or decline risk

Forms of Reinsurance

ExcessReinsurance begins with excess of retention

First DollarReinsurance begins with first dollar of coverage

Reinsurance Plans

Yearly Renewable Term (YRT)

Coinsurance (Coins)

Modified Coinsurance (ModCo)

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

Reinsurance Plans

CoinsuranceProportional reinsurance

Insurer and reinsurer share obligations of coverage (death benefit, non-forfeiture values, reserves)

Reinsurance premium percent of premium insured pays (less policy fee)

Reinsurance Plans

Mod CoThe same as coinsurance except that no

reserves are transferred to reinsurer.

Reinsurance

Risk CharacteristicsAgeSexSmoking ClassInsurance AmountInsurance PlanUnderwriting Considerations (height, weight,

family history, occupation, etc.)

Reinsurance Rules

ReinsuranceTreaty

Reinsurance Terms

Treaty

Retention

Cession

Reinsurance Terms

Treaty“Gentlemen’s Agreement”

Legal contract between writing (ceding) company and assuming (reinsuring) company

Describes terms and conditions of reinsurance agreement

Reinsurance Terms

RetentionDollar 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)

Reinsurance Terms

CessionRecord showing reinsurance information

Reinsurance effective dateInsured’s name, sex, date of birth, ageReinsurance plan (YRT, Co)Ceded amount, reinsurance NARReinsurance premium, allowance, net premium

Reinsurance Treaty

IncludesContract related provisions (parties to

agreement, termination of agreement, arbitration, errors and omission, insolvency)

Reinsurance related provisions (see next slide)

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

Reinsurance Treaty

Does Not Include Instructions for administration

Guidelines for handling exception cases

Specifications for system design

Reinsurance Calculations

NAR

Premium

Allowances

Reinsurance Calculations

NAR – Net Amount at Risk Methods

Ceded amount Ceded amount less % cash value

Changes Remain level Proportional

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)

Reinsurance Calculations

Allowances Generally a % of premium

Could also be $ per 1000

Reinsurance Reporting

CO POLICY RD PLAN ISS-DATE TREATY

TAI 1000001 01 UL10 08/15/94 AAQU1YA1

TAI 1000001 02 T10 08/15/94 AAQT1YA1 TAI 1000006 01 UL10 08/20/94 AAQU1YA1TAI 1000011 01 SUL 08/21/94 BBQSLYB2TAI 1000018 02 T10 08/23/94 AAQT1YA1TAI 1000027 01 SUL 09/02/94 BBQSLYB2

Reinsurance Reporting

Frequency – monthly, quarterly, annualMedium – paper, electronicBilling

New businessRenewals

InforceTransactions