life & health reinsurance an introduction parker crosby & ben berning

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Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

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Page 1: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Life & Health ReinsuranceAn introduction

Parker Crosby & Ben Berning

Page 2: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber

AGENDA

What is reinsurance?

What is life insurance?

What is it like to work in reinsurance?

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Page 3: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

What is reinsurance?

Insurance for insurance companies.“The primary insurance risks…are mortality, investment, persistency,

and expense risk. Reinsurance allows one insurance company to pass some or all of these insurance risks to another insurance company.”

Life Insurance Products and Finance by David B. Atkinson, FSA & James W. Dallas, FSA

Page 4: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 4

How does reinsurance work?

Policyholder

PremiumsClaims

Insurer

Part of Claims

Reinsurer

Part of Premiums

Policyholder

PremiumsClaims

Insurer

Part of Claims

Reinsurer

Part of Premiums

Page 5: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber

Benefit of reinsurance to consumers and society

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• Risk diversification• Law of large numbers

Provides protectio

n

• Reinsurers help set assumptions

• Capital efficiency• Income smoothing

Reduces price

Page 6: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 6

Unique aspects of life insurance

Two main types of insurance products • Protection products (Term insurance)• Savings and wealth accumulation

products Underwriting• Health is evaluated (medical tests,

history…)• Premium charged depends on health• Future changes (DNA, Consumer

data)???

Page 7: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 7

Life insurance is a long term business

Even short term plans can cover long periods, for example the most popular term product is 20 year term

Whole Life policy pays on the death of the life insured whenever it occurs in the future.

Direct companies cannot cancel the policy, so they expect the same from a reinsurer

Page 8: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 8

How does reinsurance work?

Indemnity vs. Assumption

Automatic vs. Facultative

Excess vs. Quota Share

– Retention example

Types of Reinsurance Contracts

– Coinsurance vs. Yearly Renewable Term (YRT)

Page 9: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 9

Indemnity vs. Assumption

• Policyholder has no contractual relationship with the reinsurance company

• Contractual relationship between the insurance company and reinsurer remains

• Reinsurer reimburses ceding company for claims

Indemnity reinsurance

• The permanent transfer of insurance liabilities • Reinsurer takes over direct companies role• Essentially the sale of a company or block of

business

Assumption reinsurance

Page 10: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 10

Automatic vs. Facultative

Automatic reinsurance• Business meets predetermined characteristics• Reinsurer must accept reinsurance of those

policies• Terms predetermined in a treatyFacultative reinsurance• Voluntary (shopped) or policy doesn’t meet

automatic requirements (capacity)• Terms negotiated separately for each policy• Reinsurer underwrites the risk

Page 11: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 11

Excess vs. Quota Share

With an Excess / Quota Share treaty, the ceding company retains a constant dollar amount / percentage of each policy up to a maximum.

C e d e d Re Ct ea d

n ded

R e t a i n e d

EXCESS QUOTA SHARE

$2,000,000

$1,000,000 i e

Page 12: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 12

Retention example

Maximum client retention is $1,000,000 for both Excess and QS

Quota share is 40%

Policy Size Retention Reinsurance

Excess Share

$500,000 $500,000 $0

$2,000,000 $1,000,000 $1,000,000

Quota Share

$500,000 $200,000 $300,000

$2,000,000 $800,000 $1,200,000

Page 13: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 13

Coinsurance vs. YRT

Coinsurance YRT

Risk sharing

Reinsurer shares in all risks of the policy

Reinsurer shares in mortality risk only

Reinsurance premium

A proportionate share of the original policy premium

Typically follows mortality pattern (not policy premiums)

Reinsurance payment

Portion of claims and expense reimbursement

Portion of claims

Rate guarantee

Guaranteed to the same extent as original policy

Not typically guaranteed

Other Ceding company gets a credit for the reserves held by the reinsurer

Page 14: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 14

Protection against adverse fluctuations

Insurers are concerned with both the number of claims and the total amount of claims payments

Level of claims will vary greatly by product type, underwriting, and market

An insurer will set its retention so that it will not risk insolvency as a result of adverse claims experience

Page 15: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber 15

Setting assumptions

Reinsurers can help clients determine the cost of the underlying risk being covered

– Experience studies

– Protective value studies

– Research

– Alignment with underwriting practices

– Alignment with claims processes

Page 16: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber

What is Reinsurance work like?

Day to day work experience

– Pricing

– Client Markets

– Valuation

– Experience Studies

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Life Insurance Reinsuranc

e Consulting

Page 17: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber

General advice

How do you know if actuarial science is the right fit?

– Attend company presentations

– Interview and ask questions

– Take an exam or two

– Job shadow

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Page 18: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Intro to L&H Reinsurance | Seb Kleber

Questions?

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Page 19: Life & Health Reinsurance An introduction Parker Crosby & Ben Berning

Thank you