Reinsurance & Risk Transfer

Keep the risk, or transfer it?

Most reinsurance questions come down to a comparison. What does it cost to keep a layer of risk, and what does it cost to cede it? CAI makes that comparison, helps design and price the program, and tests whether a contract transfers risk in the way the accounting requires.

Program design · Pricing · Ceded reserving · Risk transfer testing FCAS · FSA · MAAA

Retain or Transfer

A comparison of the two.

Keeping risk has a cost. It is the expected losses, the capital held against a bad year, and the volatility a board has to live with. Transferring it has a cost too. It is the premium, less what the reinsurer is expected to pay back. CAI puts both on the same page so the decision can be made on the numbers.

Retention Analysis

What a layer of risk is expected to cost if kept, including the capital and the volatility that come with it.

Program Design & Structure

Attachment points, limits, quota share or excess of loss, aggregate protection, and how the pieces fit the entity's size and appetite.

Pricing Review

Whether a quoted premium is reasonable for the risk in the layer, and what a fair range looks like.

Ceded & Net Reserving

Reserves gross and net of reinsurance, recoverables, and the effect of the program on reported results.

Commutations & Runoff

Valuing a block of ceded liabilities when a contract is commuted or a program winds down.

Renewal Support

A second look at renewal, checked against the entity's own numbers.

Risk Transfer Testing

Does the contract transfer risk?

Reinsurance accounting depends on the answer. A contract that does not transfer enough risk is accounted for as a deposit, and the financial statements change. The test is quantitative. For contracts near the line, it takes some care.

The question

Can the reinsurer lose a meaningful amount, with a meaningful chance? Expected reinsurer deficit (ERD) and the 10-10 rule are the usual measures.

The work

A loss distribution for the subject business, the contract modeled as written, including the features that limit the reinsurer's downside, and the result stated against the thresholds auditors use.

The deliverable

A short memo that states the method, the assumptions, and the conclusion in a form written for the auditor, with the model available behind it.

The standards

Prepared with reference to the applicable accounting guidance, SSAP 62R and ASC 944, and the Actuarial Standards of Practice.

Where It Comes Up

Who asks these questions.

Captives & Risk Retention Groups

Deciding what the captive keeps and what it cedes, and documenting risk transfer for the auditor.

Self-Insured Pools

Excess and aggregate coverage, and whether the retention still fits the pool's size.

Insurers at Renewal

An independent view of the program before the order is placed.

How It Works

What to expect.

Scope

A short call to understand the program and the question being asked.

Data

Loss history, contract wording, and the current program. Nothing more than is needed.

Analysis

Modeling, comparison, and a draft to talk through together.

Report

A memo or report sized to the question, with the work behind it.