Reinsurance Pricing Practice Flashcards

Primary Pricing Variable: The ceding commission paid by the reinsurer to the primary insurer is the central pricing component because premium, limits, and losses are shared proportionately.
Pricing Factors: Ceding commission levels are determined by the primary insurer’s retention, treaty limits, policy acquisition expenses, expected loss ratio, underwriting ability, rate adequacy, and market competition.
Profit-Sharing Calculation Steps:
1. Calculate the quota share reinsurance premium.
2. Subtract reinsurer and primary insurer costs.
3. Determine a percentage for the profit-sharing commission.

Primary Pricing Variable: Pricing depends on the ceding commission, similar to quota share treaties.
Pricing Factors: Commission amounts are based on perceived profitability, treaty limits, the primary insurer’s line, and marketplace competition.
Retention and Limits Profile: Because retention varies with each cession based on the line and coverage needs, a limits profile is used to analyze subject insurance policies and determine ceded premium at various retention amounts.

Pricing Approaches:
- Exposure Rating: Evaluates the liability inherent in the type of business covered.
- Experience Rating: Analyzes the primary insurer’s historical loss experience for the covered business.
Rate Adjustments: Reinsurance rates must account for operating and retrocessional expenses, profits, contingencies, loss adjustment expenses, and catastrophe charges.
Rating Methods:
- Flat-rated covers: A constant rate applied to the subject premium throughout the term.
- Loss-rated covers: A provisional rate adjusted based on actual loss experience under the treaty.

Exposure Rating: Utilizes manual increased limit factors based on industry-wide loss distribution data.
Experience Rating: Uses actuarial techniques to adjust the primary insurer’s past losses and premiums to project future values.
Final Rate Determination: Reinsurance underwriters typically combine the results of both exposure and experience rating.

Catastrophe Treaty Factors: Pricing is influenced by attachment points, layers and limits, underlying insurance analysis, inuring reinsurance, payback of prior losses, and reinsurance limits.
Aggregate Treaty Estimation: Pricing involves estimating losses falling between the retention and the reinsurance limit.
Actuarial Tools: Theoretical distributions are used for aggregate pricing when primary insurer historical data is insufficient.