Actuarial Notes

IAA Risk Book: Reinsurance

By Insurance Regulation Committee of the International Actuarial Association · International Actuarial Association · 2023

Study guide: Exam GI-201

An IAA Risk Book chapter (May 2023) on reinsurance, from the Insurance Regulation Committee of the International Actuarial Association. It outlines the key features of reinsurance arrangements, how they are priced and their potential impact on both the cedant and the reinsurer, with a focus on property and casualty reinsurance and a high-level treatment of life and health reinsurance.

On the syllabus

  • Exam GI-201 — outcomes 1i, 2i, 6a, 6c-d and 6f; sections 2-4, 7 and 11

Introducing the IAA Risk Book

1 Overview

  • 1.1 Background
  • 1.2 Aim of Chapter
  • 1.3 Relevance to Actuaries
  • 1.4 Executive Summary

2 Introduction

3 Categories of Reinsurance

  • 3.1 Facultative vs. Treaty
  • 3.2 Proportional vs. Non-proportional
  • 3.3 Short-Tail vs. Long-Tail Incurred Claims
  • 3.4 Direct vs. Brokered

4 Types of Proportional/Non-Proportional Reinsurance

  • 4.1 Proportional Reinsurance: Quota Share
  • 4.2 Proportional Reinsurance: Surplus
  • 4.3 Non-proportional Reinsurance: Excess of Loss

5 Life Reinsurance vs. Non-life Reinsurance

6 Pricing of Non-proportional Reinsurance

  • 6.1 Experience-Based Methods
  • 6.2 Exposure-Based Methods
  • 6.3 Reinstatements

7 Effects of Non-proportional Reinsurance

  • 7.1 Volatility Reduction
  • 7.2 Diversification Improvement
  • 7.3 Improvement of Risk/Return Relations
  • 7.4 Capacity Increase

8 Intra-group Reinsurance Transactions

  • 8.1 Structuring an IGR
  • 8.2 IGR Governance
  • 8.3 Negotiation
  • 8.4 Use of Special Purpose Vehicles
  • 8.5 Systemic Risk Considerations

9 Capital Effects of Reinsurance

  • 9.1 Substantial Decrease of Insurance Risk Capital
  • 9.2 Potential Increase of Insurance Risk Capital
  • 9.3 Solvency Ratio Improvement
  • 9.4 Rating Impact

10 Reinsurance and Regulation

  • 10.1 Business-to-Business Character of Transactions
  • 10.2 Powerful Risk Management Tool
  • 10.3 Importance of Full Recognition
  • 10.4 Cash Losses and Collateralization
  • 10.5 Systemic Risk Mitigation

11 Complementary Risk Mitigation Instruments

  • 11.1 Industry Loss Warranties
  • 11.2 Catastrophe Bonds
  • 11.3 Catastrophe Swaps
  • 11.4 Parametric Covers

Sources