Reinsurance Pricing Practice Flashcards

A comprehensive set of vocabulary flashcards covering the pricing variables, methods, and actuarial approaches for various types of reinsurance treaties, including Quota Share, Surplus Share, Excess of Loss, and Catastrophe reinsurance.

Ceding Commission (Quota Share)

The main pricing variable under quota share treaties paid by the reinsurer to the primary insurer because premium, limits, and losses are shared proportionately.

Factors Affecting Quota Share Ceding Commission

(1) Primary insurer’s retention; (2) reinsurance treaty’s limit; (3) primary insurer’s policy acquisition expenses; (4) primary insurer’s expected loss ratio, underwriting ability, and rate adequacy; and (5) competition.

Steps to Determine Profit-Sharing Ceding Commission

(1) Calculate the quota share reinsurance premium, (2) subtract reinsurer and primary insurer costs, and (3) determine a percentage for the profit-sharing commission.

Surplus Share Pricing Dependency

Depends on the amount of ceding commission the reinsurer pays to the primary insurer, which is influenced by perceived profitability, treaty limits, primary insurer's line, and competition.

Limits Profile

A tool used to analyze insurance policies subject to a surplus share treaty to evaluate retention usefulness and determine how much premium will be ceded at various retention amounts.

Exposure Rating (Property Per Risk)

A pricing approach that considers the amount of liability inherent in the type of business covered by the treaty being priced.

Experience Rating (Property Per Risk)

A pricing approach that considers the primary insurer’s loss experience in the business covered by the treaty being priced.

Flat-rated Covers

Reinsurance arrangements where the reinsurer uses the reinsurance rate as a flat rate and applies it to the subject premium through the course of the treaty term.

Loss-rated Covers

Reinsurance arrangements that use a provisional rate which is subsequently adjusted to reflect the actual loss-experience under the treaty.

Increased Limit Factors

Manual factors used in casualty exposure rating to determine premium for underlying policies, based on loss distribution constructed from insurance industry data.

Experience Rating (Casualty Excess of Loss)

A pricing method based on the primary insurer’s past losses and related subject premiums, using actuarial techniques to adjust past losses to project probable future premiums and losses.

Catastrophe Treaty Pricing Factors

Factors including attachment points, layers and limits, underlying insurance analysis, inuring reinsurance, payback of prior losses, and reinsurance limits.

Aggregate Excess of Loss Treaty Pricing

The process of estimating losses that will fall between the primary insurer’s retention and the reinsurance limit, typically using theoretical distributions due to insufficient historical data.