Reinsurance |
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| Why are four reinsurers in Bermuda using ICRFS-PLUS™ to structure multi-million-dollar reinsurance deals? Because it is giving them information they cannot get any other way. Pricing adverse development cover - retrospective or prospective - is a breeze with ICRFS-PLUS™. Probability distributions for the liability stream will allow you to understand the risks you are taking. The result of changing retention limits on Value-at-Risk is available almost instantly. The table below shows how the payments are shared by the Insurer, Reinsurer and Retrocessionaire, for Adverse Development Cover of $5 million in excess of $20 million. | |
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The cumulative probability distribution to the right shows that the Reinsurer has a 64% chance of paying nothing. However, if he pays anything at all, there is a 50% chance he will pay the maximum of $5 million! This illustrates the maxim that, often, if things go bad, they go very bad. |
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More detail is given in tables of quantiles, Value-at-Risk and simulated values, for the total, insurer,
reinsurer and, if requested, retrocessionaire. This allows you to fully understand the risk associated
with the chosen retention limits. For example, the insurer could calculate the Value-at-Risk profile under
various reinsurance arrangements. Different inflation scenarios can be also tested at warp speed. If you
want to study other reinsurance structures, just import the simulated losses for each period into your
spreadsheet and perform your own calculations.
Excess of loss reinsurance can also be evaluated by analysing and comparing the triangles for the different layers. Often the “ground up” data will give you a model that can be used to credibility-adjust the sparser data in other layers. |
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