Risk Transfer Testing of Reinsurance Contracts: A Summary of the Report by the CAS Research Working Party on Risk Transfer Testing

By David L. Ruhm and Paul J. Brehm · Casualty Actuarial Society · 2007

A paper in Variance, Volume 01, Issue 01 (2007), that summarizes key results from the Report of the Casualty Actuarial Society Research Working Party on Risk Transfer Testing. The Working Party defined and described a structured process of elimination to narrow down the field of reinsurance contracts that have to be tested for risk transfer, and offered two metrics for gauging risk transfer that are superior to the standard "10-10" value-at-risk test: the expected reinsurer deficit (ERD) and right-tailed deviation (RTD). A related metric, the risk coverage ratio (RCR), is also described.

On the syllabus

Exam GI-301 — Outcomes 7i; sections 2-5, pp. 11-17 (beginning with the first complete paragraph on p. 11).

Abstract

1 Introduction

2 Risk measurement and the risk transfer testing process

3 Expected reinsurer deficit

3.1 ERD's relationships to other risk metrics and methods
3.2 ERD and the 10-10 rule
3.3 Risk coverage ratio (RCR)
3.4 RCR example
3.5 Advantages of ERD and RCR versus other risk metrics

4 Right-tailed deviation measure

5 Conclusion

References

Sources

Risk Transfer Testing of Reinsurance Contracts (Ruhm and Brehm, Variance, Volume 01, Issue 01, 2007) — the document: title page and abstract for the lead, the numbered section headings, and the PDF's metadata (title, authors); the syllabus cites the authors as Brehm and Ruhm
GI 301 Syllabus, Mar 2027/Jul 2027 (SOA) — the citation and the assignment (outcome 7i, sections 2-5, pp. 11-17)