Actuarial Notes

Management of Collateralised Reinsurance: Market Themes & Best Practice

By Lloyd's · 2024 · CP341-118-25

Study guide: Exam CP-341

A Lloyd's report dated August 2024 that shares the market themes and examples of best practice Lloyd's Outwards Reinsurance Team saw in its 2024 review of how syndicates manage collateralised reinsurance. It treats a syndicate's management of collateralised reinsurance as part of the Outwards Reinsurance Principle under Lloyd's principles-based oversight framework, and is not a mandated checklist. It covers market challenges, collateral features, best practice and key messages.

On the syllabus

Foreword

1 Market Challenges

  • 1.1 Collateralised reinsurance adds complexity
  • 1.2 Availability and experience of staff
  • 1.3 Divided operational management
  • 1.4 Evolving market experience

2 Collateral Features

  • A table of the most common forms of collateral (such as cash in trust, cash equivalents in trust and assets in trust), with the risk considerations and recommended credit risk approach for each.

3 Market Best Practice

  • 3.1 Reinsurance Strategy for Collateralised Reinsurance
  • 3.2 Roles, Responsibilities and Rules around Collateralised Reinsurance
  • 3.3 Collateralised Reinsurance Data, Reporting and Management
  • 3.4 Collateral Counterparty Management
    • Independent verification of banks or similar institutions acting as a party to the collateral arrangement, prior to binding of contract and at regular intervals while the collateral is in force.
  • 3.5 Collateralised Reinsurance Documentation
    • Review of the collateral documentation (trust agreement and/or Letter of Credit) alongside the reinsurance contract, cross-referenced against the reinsurance wording to ensure no conflicts.

4 Key Messages

5 Useful Links

Sources