life & health reinsurance an introduction parker crosby & ben berning
TRANSCRIPT
Life & Health ReinsuranceAn 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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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
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
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
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)???
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
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)
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
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
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
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
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
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
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
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
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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Intro to L&H Reinsurance | Seb Kleber
Questions?
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Thank you