This paper examines conditions necessary for both Insurer and Reinsurer to be motivated to engage in a quota share reinsurance treaty. The emphasis is on numerical break-evens, and explores capital considerations.
Reinstatement strategy: philosophy, theory, and practiceRichard Hartigan
This paper determines the optimal reinstatement strategy for an insurer’s short-tail excess of loss reinsurance programme. Mirror layers, 1-shot layers (with or without back-up layers), and reinstatement premium protection will almost certainly be sub-optimal.
Este documento explica la diferencia entre tasas de interés nominales y efectivas. Indica que la tasa efectiva anual aplicada una sola vez produce el mismo resultado que la tasa nominal según el período de capitalización. También describe que la tasa nominal capitaliza más de una vez por año y es establecida por el banco central, mientras que la tasa efectiva representa globalmente todos los costos de una operación financiera. Finalmente, proporciona fórmulas y ejemplos para calcular tasas efectivas usando diferentes métodos.
Jensen Meckling Agency Theory Presentation LuomaBreatheBusiness
The 1976 article by Jensen and Meckling introduced the concept of agency theory to analyze conflicts of interest between managers and owners of firms. It defined agency costs as the costs of monitoring, bonding, and residual loss incurred to mitigate divergences from shareholders' interests due to differing goals of managers. The paper also viewed the firm as a legal fiction serving as a nexus for contracts between individuals with conflicting objectives, rather than as a single maximizing entity. It integrated prior research on property rights, organization theory, and incentives to develop a new understanding of corporate ownership structure.
This presentation summarizes the key aspects of a quota-share treaty. A quota-share treaty is a type of proportional reinsurance contract where the insurer and reinsurer share premiums and losses according to a fixed percentage. For example, a 60% quota-share means 60% of risks, premiums, and losses are ceded to the reinsurer, while the insurer retains 40%. Quota-share treaties are obligatory in nature and operate on a fixed percentage basis for every risk. They are well-suited for limiting risk and fluctuation, especially for young or developing insurance companies. However, quota-share treaties are also inflexible and do not allow for balancing of portfolios.
Trinity Group is an Indian conglomerate established in 1979 operating in the insurance and reinsurance industry. It has several entities including Trinity Reinsurance Brokers Limited, an exclusive reinsurance broker licensed by IRDA. Trinity Reinsurance Brokers Limited provides facultative, treaty, back end, and consultancy services to both national and international clients. Trinity Group has a dominant position in the Indian market with over USD 200 million in net worth and specializes in structuring treaty programs and facultative business.
Reinstatement strategy: philosophy, theory, and practiceRichard Hartigan
This paper determines the optimal reinstatement strategy for an insurer’s short-tail excess of loss reinsurance programme. Mirror layers, 1-shot layers (with or without back-up layers), and reinstatement premium protection will almost certainly be sub-optimal.
Este documento explica la diferencia entre tasas de interés nominales y efectivas. Indica que la tasa efectiva anual aplicada una sola vez produce el mismo resultado que la tasa nominal según el período de capitalización. También describe que la tasa nominal capitaliza más de una vez por año y es establecida por el banco central, mientras que la tasa efectiva representa globalmente todos los costos de una operación financiera. Finalmente, proporciona fórmulas y ejemplos para calcular tasas efectivas usando diferentes métodos.
Jensen Meckling Agency Theory Presentation LuomaBreatheBusiness
The 1976 article by Jensen and Meckling introduced the concept of agency theory to analyze conflicts of interest between managers and owners of firms. It defined agency costs as the costs of monitoring, bonding, and residual loss incurred to mitigate divergences from shareholders' interests due to differing goals of managers. The paper also viewed the firm as a legal fiction serving as a nexus for contracts between individuals with conflicting objectives, rather than as a single maximizing entity. It integrated prior research on property rights, organization theory, and incentives to develop a new understanding of corporate ownership structure.
This presentation summarizes the key aspects of a quota-share treaty. A quota-share treaty is a type of proportional reinsurance contract where the insurer and reinsurer share premiums and losses according to a fixed percentage. For example, a 60% quota-share means 60% of risks, premiums, and losses are ceded to the reinsurer, while the insurer retains 40%. Quota-share treaties are obligatory in nature and operate on a fixed percentage basis for every risk. They are well-suited for limiting risk and fluctuation, especially for young or developing insurance companies. However, quota-share treaties are also inflexible and do not allow for balancing of portfolios.
Trinity Group is an Indian conglomerate established in 1979 operating in the insurance and reinsurance industry. It has several entities including Trinity Reinsurance Brokers Limited, an exclusive reinsurance broker licensed by IRDA. Trinity Reinsurance Brokers Limited provides facultative, treaty, back end, and consultancy services to both national and international clients. Trinity Group has a dominant position in the Indian market with over USD 200 million in net worth and specializes in structuring treaty programs and facultative business.
Velupillai Prabhakaran is the leader of the Liberation Tigers of Tamil Eelam (LTTE), a terrorist organization banned in several countries. He pioneered suicide bombing and is responsible for forcibly recruiting child soldiers as young as 14. Prabhakaran's goal is to establish an ethnically pure Tamil state in Sri Lanka through violent means such as suicide bombings. Currently, the LTTE is cornered by the Sri Lankan military but is holding over 70,000 civilians hostage as human shields. The document outlines various human rights violations by the LTTE against civilians trying to flee the conflict zone.
The document is from the diary of a Palestinian boy who was shot in the head by an Israeli soldier. In the diary, the boy wonders if he will be blind in one eye after his bandages are removed and describes seeing the soldier who shot him clearly with his eyes closed. He also mentions another young child, a nine-month old baby, who was shot and lost an eye. The boy expresses confusion about why this violence is happening to children.
Inst 1120-PC (Schedule M-3)-Instructions for Schedule M-3 (Form 1120-PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More
The document discusses the property and casualty insurance sector, noting that it offers good investment opportunities at current prices. While returns have historically been average, strategic choices can lead to sustained attractive returns in the low-to-mid teens for some companies. The sector has remained healthy through the financial crisis, with most insurers paying dividends without needing state aid. However, analysis of individual companies is needed to determine their true sustainable returns and competitive positions.
The document discusses the duty of utmost good faith in reinsurance contracts. It states that this duty requires high levels of honesty and disclosure between the ceding insurer and reinsurer. The ceding insurer must disclose all material facts to the reinsurer during contract formation and ongoing administration of the contract. The duty is mutual, so the reinsurer must also deal fairly with the ceding insurer. While some see it as a fiduciary duty, most courts treat it as a very high standard of good faith just below fiduciary duty. The requirements of the duty may be higher for treaty reinsurance, where the reinsurer relies more heavily on the ceding insurer.
Property & Liability insurance involves the equitable transfer of risk, where many policyholders share the financial losses of a few through premium contributions. P&L insurance company investments total around $789 billion, with most assets invested in securities to pay claims if needed. Net premiums written for all lines were around $300 billion. P&L policies are short-term, and claims payments can vary greatly depending on catastrophes. Various rating systems like schedule, experience and retrospective ratings adjust premiums based on risk factors of individual policies.
3) Principles and Practice of ReinsuranceKity Cullen
The document discusses the principles and practice of reinsurance. It covers three main topics: 1) the reinsurance needs of direct insurers in terms of protecting solvency and reducing variability of outcomes, 2) the forms and methods of placing reinsurance, including proportional and non-proportional reinsurance, and 3) reinsurance practices and problems, such as the effects of inflation and floating exchange rates on reinsurance business.
This document provides an introduction to a study on consumers' perceptions of life insurance policies. It discusses how life insurance is important for protecting families financially in cases of death or loss of income. The study aims to understand how consumer perceptions of service quality and product quality differ between life insurance policies offered by different companies. It also provides background definitions and context on insurance, including the different types of insurance, the importance of insurance for society and the economy, and the evolution of the insurance industry in India.
Valuation of goodwill & shares with solution of problemsafukhan
The document discusses various methods for valuing goodwill, including:
1) Future Maintainable Profits Method - Which values goodwill based on the future profits a business is expected to maintain. It calculates average past profits over several years to estimate future profits.
2) Super Profits Method - Which values goodwill based on "super profits", the amount of profits earned above a business's normal rate of return on capital employed. Super profits are multiplied by the number of years of purchase to value goodwill.
3) Number of Years Purchase Method - Which values goodwill as the future maintainable profits multiplied by the number of years those profits are expected to continue into the future.
The document provides examples
Detailed lesson plan in Animal Production sinarapan2015
This lesson plan outlines teaching students about the life cycle of chickens. It includes objectives, materials, procedures, and an assignment. The procedures have the teacher explaining figures of the chicken life cycle and guiding discussion. Students will describe the figures, answer questions about what would happen if parts of the cycle were disrupted, and practice arranging pictures in the proper sequence. The evaluation has students drawing and labeling and describing the full chicken life cycle.
STORYTELLING LESSON PLAN FOR YOUNG LEARNERSMüberra GÜLEK
This lesson plan outlines a 40-minute activity for 5th and 6th grade students focused on storytelling. It includes watching a video about a short story called "Princess Farmer," reading and discussing the story in groups, playing a true/false game about the story, and completing a puzzle and drawing activity related to the story. The lesson aims to help students learn to classify, understand, and convey meaning from stories while developing their listening, reading, and language skills.
Salsa is a type of dance that the document discusses. It provides a brief history of salsa and describes salsa dance classes being offered over the summer at a location called Los Bongos. The document encourages the reader to join salsa dance classes and experience dancing on the floor.
This lesson plan summarizes a story about a terrorist and a soldier. The student will read the story and answer comprehension questions to identify the main characters, analyze their descriptions, and relate the situation to their own life. They will then complete a true/false quiz about the story. For an assignment, the student will write a composition describing a time when they experienced a change in beliefs, like the terrorist character did in the story after reading the soldier's letter.
Reinsurance involves insurance companies insuring each other's risks. There are two main types of reinsurance - facultative, which applies to individual risks, and treaty, which applies to a company's entire book of business. Reinsurance can be proportional, where the reinsurer takes a share of each policy, or non-proportional, where the reinsurer covers losses over a certain amount. The reinsurance market in India is dominated by GIC, the sole domestic reinsurer, which reinsures a portion of policies with international reinsurers. Some challenges for reinsurers in the Indian market include higher premium rates and a lack of desirable quotes from Indian reinsurers for small deals.
The document discusses decision theory and decision trees. It introduces decision making under certainty, risk, and uncertainty. It defines elements related to decisions like goals, courses of action, states of nature, and payoffs. It also discusses concepts like expected monetary value, expected profit with perfect information, expected value of perfect information, and expected opportunity loss. Examples are provided to demonstrate calculating these metrics. Finally, it provides an overview of how to construct a decision tree, including defining the different node types and how to calculate values within the tree.
This document provides a detailed lesson plan in English with the objectives of defining simple tenses, enumerating the classification of verbs, familiarizing the use of simple tenses, and writing the correct form of verb tenses. The lesson plan will use pen, paper, and an English communication arts reference book as materials. Students will learn about verb tenses through various classroom activities.
The lesson plan aims to teach students about the elements of a short story using O. Henry's "The Last Leaf". Students will develop their vocabulary by defining words from the story. They will read the story silently and answer comprehension questions about the characters, setting, and events. Finally, students will write a summary of the story and an essay analyzing the friendship between the main characters and reflecting on friendship in their own lives.
The document contains a detailed lesson plan for a 60-minute English class focusing on the short story "Footnote to Youth" by Jose Garcia Villa. The lesson plan outlines the objectives, subject matter, teacher and student activities, including an introduction, review, vocabulary lesson, presentation of the story, discussion, generalization, and assignment. Key elements of the story like characters, setting, and themes are analyzed. Students are divided into groups to complete a story grammar graphic organizer on the short story.
This document outlines a lesson plan for teaching students about topic sentences. The objectives are for students to define topic sentences, distinguish between different types, identify topic sentences in paragraphs, and identify where in a paragraph a topic sentence is located. The lesson will involve discussing topic sentences, providing examples, and having students practice identifying topic sentences and drawing representations of where they are located in paragraphs. Students will then evaluate their understanding by identifying and formulating topic sentences, and identifying the placement of topic sentences in given paragraphs.
This M Intelligence piece will explore the product mechanics and design considerations of Whole Life (WL) insurance. There are two general categories of WL...
Velupillai Prabhakaran is the leader of the Liberation Tigers of Tamil Eelam (LTTE), a terrorist organization banned in several countries. He pioneered suicide bombing and is responsible for forcibly recruiting child soldiers as young as 14. Prabhakaran's goal is to establish an ethnically pure Tamil state in Sri Lanka through violent means such as suicide bombings. Currently, the LTTE is cornered by the Sri Lankan military but is holding over 70,000 civilians hostage as human shields. The document outlines various human rights violations by the LTTE against civilians trying to flee the conflict zone.
The document is from the diary of a Palestinian boy who was shot in the head by an Israeli soldier. In the diary, the boy wonders if he will be blind in one eye after his bandages are removed and describes seeing the soldier who shot him clearly with his eyes closed. He also mentions another young child, a nine-month old baby, who was shot and lost an eye. The boy expresses confusion about why this violence is happening to children.
Inst 1120-PC (Schedule M-3)-Instructions for Schedule M-3 (Form 1120-PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More
The document discusses the property and casualty insurance sector, noting that it offers good investment opportunities at current prices. While returns have historically been average, strategic choices can lead to sustained attractive returns in the low-to-mid teens for some companies. The sector has remained healthy through the financial crisis, with most insurers paying dividends without needing state aid. However, analysis of individual companies is needed to determine their true sustainable returns and competitive positions.
The document discusses the duty of utmost good faith in reinsurance contracts. It states that this duty requires high levels of honesty and disclosure between the ceding insurer and reinsurer. The ceding insurer must disclose all material facts to the reinsurer during contract formation and ongoing administration of the contract. The duty is mutual, so the reinsurer must also deal fairly with the ceding insurer. While some see it as a fiduciary duty, most courts treat it as a very high standard of good faith just below fiduciary duty. The requirements of the duty may be higher for treaty reinsurance, where the reinsurer relies more heavily on the ceding insurer.
Property & Liability insurance involves the equitable transfer of risk, where many policyholders share the financial losses of a few through premium contributions. P&L insurance company investments total around $789 billion, with most assets invested in securities to pay claims if needed. Net premiums written for all lines were around $300 billion. P&L policies are short-term, and claims payments can vary greatly depending on catastrophes. Various rating systems like schedule, experience and retrospective ratings adjust premiums based on risk factors of individual policies.
3) Principles and Practice of ReinsuranceKity Cullen
The document discusses the principles and practice of reinsurance. It covers three main topics: 1) the reinsurance needs of direct insurers in terms of protecting solvency and reducing variability of outcomes, 2) the forms and methods of placing reinsurance, including proportional and non-proportional reinsurance, and 3) reinsurance practices and problems, such as the effects of inflation and floating exchange rates on reinsurance business.
This document provides an introduction to a study on consumers' perceptions of life insurance policies. It discusses how life insurance is important for protecting families financially in cases of death or loss of income. The study aims to understand how consumer perceptions of service quality and product quality differ between life insurance policies offered by different companies. It also provides background definitions and context on insurance, including the different types of insurance, the importance of insurance for society and the economy, and the evolution of the insurance industry in India.
Valuation of goodwill & shares with solution of problemsafukhan
The document discusses various methods for valuing goodwill, including:
1) Future Maintainable Profits Method - Which values goodwill based on the future profits a business is expected to maintain. It calculates average past profits over several years to estimate future profits.
2) Super Profits Method - Which values goodwill based on "super profits", the amount of profits earned above a business's normal rate of return on capital employed. Super profits are multiplied by the number of years of purchase to value goodwill.
3) Number of Years Purchase Method - Which values goodwill as the future maintainable profits multiplied by the number of years those profits are expected to continue into the future.
The document provides examples
Detailed lesson plan in Animal Production sinarapan2015
This lesson plan outlines teaching students about the life cycle of chickens. It includes objectives, materials, procedures, and an assignment. The procedures have the teacher explaining figures of the chicken life cycle and guiding discussion. Students will describe the figures, answer questions about what would happen if parts of the cycle were disrupted, and practice arranging pictures in the proper sequence. The evaluation has students drawing and labeling and describing the full chicken life cycle.
STORYTELLING LESSON PLAN FOR YOUNG LEARNERSMüberra GÜLEK
This lesson plan outlines a 40-minute activity for 5th and 6th grade students focused on storytelling. It includes watching a video about a short story called "Princess Farmer," reading and discussing the story in groups, playing a true/false game about the story, and completing a puzzle and drawing activity related to the story. The lesson aims to help students learn to classify, understand, and convey meaning from stories while developing their listening, reading, and language skills.
Salsa is a type of dance that the document discusses. It provides a brief history of salsa and describes salsa dance classes being offered over the summer at a location called Los Bongos. The document encourages the reader to join salsa dance classes and experience dancing on the floor.
This lesson plan summarizes a story about a terrorist and a soldier. The student will read the story and answer comprehension questions to identify the main characters, analyze their descriptions, and relate the situation to their own life. They will then complete a true/false quiz about the story. For an assignment, the student will write a composition describing a time when they experienced a change in beliefs, like the terrorist character did in the story after reading the soldier's letter.
Reinsurance involves insurance companies insuring each other's risks. There are two main types of reinsurance - facultative, which applies to individual risks, and treaty, which applies to a company's entire book of business. Reinsurance can be proportional, where the reinsurer takes a share of each policy, or non-proportional, where the reinsurer covers losses over a certain amount. The reinsurance market in India is dominated by GIC, the sole domestic reinsurer, which reinsures a portion of policies with international reinsurers. Some challenges for reinsurers in the Indian market include higher premium rates and a lack of desirable quotes from Indian reinsurers for small deals.
The document discusses decision theory and decision trees. It introduces decision making under certainty, risk, and uncertainty. It defines elements related to decisions like goals, courses of action, states of nature, and payoffs. It also discusses concepts like expected monetary value, expected profit with perfect information, expected value of perfect information, and expected opportunity loss. Examples are provided to demonstrate calculating these metrics. Finally, it provides an overview of how to construct a decision tree, including defining the different node types and how to calculate values within the tree.
This document provides a detailed lesson plan in English with the objectives of defining simple tenses, enumerating the classification of verbs, familiarizing the use of simple tenses, and writing the correct form of verb tenses. The lesson plan will use pen, paper, and an English communication arts reference book as materials. Students will learn about verb tenses through various classroom activities.
The lesson plan aims to teach students about the elements of a short story using O. Henry's "The Last Leaf". Students will develop their vocabulary by defining words from the story. They will read the story silently and answer comprehension questions about the characters, setting, and events. Finally, students will write a summary of the story and an essay analyzing the friendship between the main characters and reflecting on friendship in their own lives.
The document contains a detailed lesson plan for a 60-minute English class focusing on the short story "Footnote to Youth" by Jose Garcia Villa. The lesson plan outlines the objectives, subject matter, teacher and student activities, including an introduction, review, vocabulary lesson, presentation of the story, discussion, generalization, and assignment. Key elements of the story like characters, setting, and themes are analyzed. Students are divided into groups to complete a story grammar graphic organizer on the short story.
This document outlines a lesson plan for teaching students about topic sentences. The objectives are for students to define topic sentences, distinguish between different types, identify topic sentences in paragraphs, and identify where in a paragraph a topic sentence is located. The lesson will involve discussing topic sentences, providing examples, and having students practice identifying topic sentences and drawing representations of where they are located in paragraphs. Students will then evaluate their understanding by identifying and formulating topic sentences, and identifying the placement of topic sentences in given paragraphs.
This M Intelligence piece will explore the product mechanics and design considerations of Whole Life (WL) insurance. There are two general categories of WL...
The document discusses how corporate hedgers can use cash flow at risk (CFaR) reports to make informed hedging decisions. It provides an example of an airline hedging its jet fuel costs for the next quarter. The CFaR report shows that with 95% certainty, jet fuel prices will not exceed $1.635 per gallon. Given this, hedging 80-90% of fuel purchases would keep fuel costs between 18.5-19% of revenue, meeting the airline's objectives. The airline hedged 85% of its fuel at $1.28 per gallon. Actual fuel prices showed the hedge was successful in keeping fuel costs at 18.34% of revenue.
GCC Hotel Management Contracts Survey - February 2015John_Podaras
Review of the main commercial terms for 61 management contracts between owners of hotels in the GCC and international hotel management companies.
Survey carried out in February 2015 by Hotel Development Resources, Dubai with the support and assistance of the office of Al Tamimi & Co.
This document discusses pension buy-in arrangements, which are similar to annuities but do not transfer responsibility for pension obligations from the employer to an insurer. Under a buy-in, the pension plan purchases a contract from an insurer to generate returns to cover future benefit payments, but the plan remains responsible for payments. The document explores accounting implications, noting buy-ins do not qualify for settlement accounting and should be recorded as a plan asset at fair value.
Basics of Reinsurance, Types, Purposes, Advantages and DisadvantagesPrashantRajNeupane1
This document provides an overview of reinsurance presented by Trust Insurance Brokers Pvt. Ltd. It defines reinsurance as insurance for insurance companies and transfers part of insured risks to a reinsurer. The main reasons for reinsurance are to limit annual loss fluctuations, protect against catastrophes, and maintain solvency. The presentation describes the advantages of reinsurance for both primary insurers and reinsurers. It also outlines the different types of reinsurance including facultative, obligatory, proportional, and non-proportional. Key terms like premiums, treaties, and regulatory requirements are also summarized.
Sometimes it’s difficult to decide which type of buy sell agreement to recommend when dealing with QPSC, S Corp, and LLCs. Should it be a stock redemption plan funded with employer owned insurance or a cross purchase plan funded by cross owned insurance?
Get expert insight from Russell E. Towers JD, CLU, ChFC
Vice President, Business & Estate Planning at Brokers' Service Marketing Group ( A brokerage general agency for financial professionals).
This document summarizes a lecture on the general business environment for life assurance companies. It discusses how the economic, legal, regulatory, and professional environments can impact insurer expenses, risk levels, and opportunities. Specifically, it notes that inflation can influence expenses, developing or volatile economies present higher risks, and legal/regulatory changes may constrain product design or contract terms over long time periods.
The current soft insurance market provides a good opportunity for agencies to create captive insurance companies. Captives can generate underwriting profits and investment income for agencies. They also allow agencies more control over their business partnerships with carriers. By taking advantage of Section 831(b), agency captives' underwriting profits may be exempt from federal taxes if annual premiums do not exceed $1.2 million. Waiting until the next hard market reduces opportunities agencies have now to partner with carriers and develop new profit strategies using a captive. The best time for agencies to start exploring a captive strategy is during the current soft market conditions.
This document provides an overview of various types of commercial insurance policies and concepts, including:
- Commercial Package Policies that bundle various coverage parts like general liability, property, and business income.
- The distinction between first-party insurance that pays the policyholder, and third-party insurance that pays others.
- The importance of reading the policy (RTFP) to understand what is and isn't covered, including any sub-limits or exclusions.
- Differences between excess policies, umbrellas, towers of coverage, and how policies may follow-form or have standalone terms.
- Concepts of self-insurance, large deductible plans, captives, reinsurance, fronting
We are happy to share 3rd Issue of our magazine Ingenious.
It contains
1. Artticle on solvency Margin by Gopinath sir in the section called progression.
2. List of AWF Qualifiers
3. Did you know by Indepal Singh Bindra
4. Data Centre latest economic data and small savings scheme rates
5. RBI launches e - Rupee by Geeta Mohan. P
6. Trade Infra in India by Bharathi Srinivasan
7. Rise & Fall of Crypto Exchange FTX by Savita Pillai
8. Role & Importance of professional insurance advisor Part 2 by Ankur Shah
9. Last RBI MPC meet statement
This document summarizes a tradesman liability insurance policy for AB Roofing Solutions Ltd. The 3-page schedule provides key policy details including:
- The policy period is from April 20, 2015 to April 19, 2016.
- Coverage limits for employers' liability and public/products liability.
- A GBP1,500 excess applies to public/products liability claims.
- The policy is based on 6 employees (5 manual, 1 non-manual) and is adjustable if employee numbers change.
- Various endorsements and conditions are attached relating to asbestos, use of heat, height restrictions, and personal protective equipment.
1.This situation can exist because companies vary as to whether th.pdfapleathers
1.
This situation can exist because companies vary as to whether they are using an implicit or ex-
plicit set of assumptions when interest rates are disclosed. In the implicit approach, two or more
assumptions do not individually represent the best estimate of the plan’s future experience with
respect to these assumptions, but the aggregate effect of their combined use is presumed to be
approximately the same as that of an explicit approach. In the explicit approach, each significant
assumption reflecting the best estimate of the plan’s future experience solely with respect to that
assumption must be stated. As a result, some companies are presently using an implicit approach,
others an explicit approach. IAI19requires the use of explicit assumptions. As a result, this large
variance in interest rates will probably disappear to some extent. However, it should be noted
that companies will have some leeway in establishing discount rates. In addition, the expected
return on assets will also be different among companies.
2.
This situation will occur because of the pension liability required to be reported. That is,
companies are required to report as a liability the excess of their defined benefit obligation over
the fair value of plan assets and adjusted for unrecognized PSC and unexpected gains and losses.
In the past, the basic liability companies reported was the excess of the amount expensed over
the amount funded.
3.
This statement is questionable. If a financial measure purports to represent a phenomenon that is
volatile, the measure must show that volatility or it will not be representation ally faithful.
Never-theless, many argue that volatility is inappropriate when dealing with such long-term
measures as pensions. A good example of where dampening might be useful is the recognition of
gains and losses. If assumptions prove to be accurate estimates of experience over a number of
years, gains or losses in one year will be offset by losses or gains in subsequent periods, and
amorti-zation of unrecognized gains and losses would be unnecessary. The main point is that
volatility per se should not be considered undesirable when establishing accounting principles.
Although some managements may consider volatility bad, this belief should not influence
standard-setting. However, it is clear from some of the compromises made in IAS19that certain
procedures were provided to dampen the volatility effect.
4.
(a) In a defined contribution plan, the amount contributed is the amount expensed. No significant
reporting problems exist here. On the other hand, defined benefit plans involve many difficult
reporting issues which may lead to additional expense and liability recognition. Significant
amendments will generally increase past service cost which may lead to significant adjustments
to pension expense in the future.
(b) Plan participants are of importance, because the expected future years of service com-
putation can have an impact on the amortizati.
The document discusses various concepts related to insurance including:
1. It defines a utility function and explains how it is used to represent consumer preferences and welfare for different consumption levels and probabilities of states occurring in insurance.
2. It discusses key features of the individual risk model including how consumption levels and probabilities are incorporated into the utility function.
3. It explains how the central limit theorem can be applied in insurance problems by allowing inferences about event probabilities to use normal approximations even if the underlying data is not normally distributed, which is useful for factors like determining claim probabilities and identifying changes over time.
I have prepared an article on the total loss claim. I have uploaded for members of IIISLA. As a responsible Chairman IIISLA UP, I will be uploading various educative slides and writeups.
This document discusses two methods for calculating premiums in reinsurance treaties: flat premium basis and percentage basis. Under percentage basis, the reinsurer's premium is calculated as a percentage of the ceding company's gross or net premium income. A deposit premium is paid upfront with adjustments made later based on actual premiums. Adjustment premiums can use a flat rate percentage or variable burning cost rate, which is losses divided by premiums with a loading factor.
The document discusses the valuation of pension liabilities and proposes an alternative accrual rate method. It argues that:
1) Current market-consistent discount rate methods can introduce large errors in liability valuations compared to the implicit accrual rates in contribution and benefit promises.
2) Pension liabilities should be valued based on accumulated contributions plus accrued interest, similar to insolvency procedures, rather than discounted projected benefits.
3) This accrual rate method provides a more objective, accurate and time-consistent valuation that better reflects the original commitments made.
Terminated vested cashouts can provide benefits to plan sponsors by reducing pension liability and costs. However, some sponsors are hesitant due to perceived concerns. This document addresses 10 common concerns: 1) Interest rates are too low, but waiting risks missing opportunities. 2) Using fixed income assets to pay lump sums preserves portfolio risk. 3) Funded status may dip but economic costs are reduced. 4) Settlement accounting can be avoided or may not negatively impact share price. 5) Contributions may accelerate slightly but long-term costs are reduced. 6) Participants have flexibility and many roll over funds. 7) Cashouts can support eventual plan termination. 8) Data cleanup is more efficient now. 9) Costs are often justified
Financial Guarantee 1[1] Music [Recovered] 5 01 09BPANGEL13
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania. It would provide down payment guarantees through surety bonds or policies, allowing borrowers to obtain full financing from lenders rather than pay a large down payment themselves. The program would benefit borrowers by avoiding draining their cash, lenders by enabling full loans with minimal added risk, insurers through premiums, and the state via increased real estate transactions stimulating the economy.
Chapter 4 focuses on describing how to estimate and calculate Weighted Average Cost of Capital, answering the following questions:
How is the WACC calculated?
What is the Cost of Debt, Cost of Equity and Beta?
What is the Market Risk Premium and Country Risk Premium?
What is the periodicity of WACC calculation?
Similar to Quota share reinsurance: philosophy, theory, and practice (20)
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
The Universal Account Number (UAN) by EPFO centralizes multiple PF accounts, simplifying management for Indian employees. It streamlines PF transfers, withdrawals, and KYC updates, providing transparency and reducing employer dependency. Despite challenges like digital literacy and internet access, UAN is vital for financial empowerment and efficient provident fund management in today's digital age.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
New Visa Rules for Tourists and Students in Thailand | Amit Kakkar Easy VisaAmit Kakkar
Discover essential details about Thailand's recent visa policy changes, tailored for tourists and students. Amit Kakkar Easy Visa provides a comprehensive overview of new requirements, application processes, and tips to ensure a smooth transition for all travelers.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...AntoniaOwensDetwiler
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...
Quota share reinsurance: philosophy, theory, and practice
1. Richard
Hartigan
1
21
August
2015
Quota
Share
Reinsurance:
Philosophy,
Theory
and
Practice
Richard
Hartigan,
FIA
FIAA
BEc
MBA
Abstract
This
paper
examines
conditions
necessary
for
both
Insurer
and
Reinsurer
to
be
motivated
to
engage
in
a
quota
share
reinsurance
treaty.
The
emphasis
is
on
numerical
break-‐evens,
and
explores
capital
considerations.
The
quota
share
reinsurance
treaty
is
the
humblest
form
of
reinsurance,
so
humble
(and
apparently
simple)
that
research
into
the
philosophy,
theory
and
practice
of
the
quota
share
reinsurance
treaty
is
sparse.
This
paper
seeks
to
change
that.
In
its
simplest
form
an
Insurer
agrees
to
cede
X%
of
its
premium
to
a
Reinsurer,
and
in
return
the
Reinsurer
agrees
to
pay
X%
of
the
Insurer’s
losses.
In
practice
the
terms
of
a
quota
share
reinsurance
treaty
are
more
complicated.
For
this
paper
(unless
otherwise
specified)
I
assume
the
following:
• Gross
Loss
Ratio
(GLR)
(Insurer)
(expected):
50%
of
OGP
• Original
Commission
(i.e.
Insurer’s
Acquisition
Expenses):
20%
of
OGP
• Operating
Expenses
(Insurer):
16%
of
OGP
• Reinsurance
Brokerage:
1.5%
of
OGP
(ceded)
• Reinsurance
Brokerage
Rebate:
30%
to
the
Insurer
• Over-‐rider:
5%
of
OGP
(ceded)
• Profit
Commission:
22.5%
of
Reinsurer’s
Profit
• Reinsurer’s
Expenses
(including
Reinsurance
Brokerage)
for
Profit
Commission
purposes:
10%
of
OGP
(ceded)
• Reinsurer’s
actual
incremental
expenses
(excluding
Reinsurance
Brokerage):
8%
of
OGP
(ceded)
• No
insurance
premium
tax
• No
carry-‐forward
of
losses
for
Profit
Commission
calculations
• No
contractual
or
gentleman’s
agreement
on
payback
• No
reciprocity
(i.e.
the
reinsurance
treaty
is
not
linked
to
the
purchase,
or
offer,
of
any
other
reinsurance)
• Homogenous
set
of
risks
with
no
individual
risk
dominant
• No
catastrophe
exposure
• Only
one
class
of
business
written
(which
is
the
subject
of
the
reinsurance
treaty)
Several
elements
of
the
above
need
further
explanation.
OGP
=
Original
Gross
Premium.
The
assumptions
with
respect
to
carry-‐forward
/
gentleman’s
agreement
/
reciprocity
are
made
to
ensure
that
the
particular
quota
share
reinsurance
treaty
stands
on
its
own
(on
a
one
year
basis).
In
practice
all
three
of
these
assumptions
will
usually
be
relaxed
to
some
greater
or
lesser
extent.
The
Reinsurance
Brokerage
Rebate
is
a
feature
of
London
Market
business
and
serves
no
purpose
other
than
to
allow
the
Insurer’s
broker
to
appear
to
receive
higher
brokerage
than
he
is
actually
receiving
(since
he
rebates
some
of
his
brokerage
to
his
client:
the
Insurer).
The
argument,
which
seems
weak
to
your
author
(an
admirer
of
the
Chicago
school
of
economics,
and
believer
generally
in
market
efficiency),
is
that
the
Reinsurer
would
not
give
‘credit’
to
the
Insurer
if
the
brokerage
were
lowered
to
the
net
figure,
thus
the
need
for
the
Reinsurance
Brokerage
Rebate
illusion.
2. Richard
Hartigan
2
21
August
2015
The
Over-‐rider
is
an
over-‐riding
commission
(over
and
above
the
Original
Commission)
granted
by
the
Reinsurer
to
the
Insurer
in
recognition
of
the
latter’s
operating
expenses.
It
is
strictly
a
pricing
mechanism
of
the
quota
share
reinsurance
treaty
and
rarely
will
there
be
convergence
between
the
Over-‐rider
and
the
Insurer’s
actual
Operating
Expenses
(as
above:
5%
versus
16%).
Similar
comments
may
be
made
with
respect
to
the
quantum
of
the
Reinsurer’s
Expenses
for
profit
commission
purposes
versus
the
Reinsurer’s
actual
incremental
expenses
(as
above:
10%
versus
8%).
Although
not
uniform
many
quota
share
reinsurance
treaties
feature
a
profit
commission
wherein
the
Reinsurer
agrees
to
reimburse
to
the
Insurer
a
certain
percentage
of
the
Reinsurer’s
profit.
I
use
the
formula:
Profit
Commission
(%
OGP
(ceded))
=
MAX(0,
22.5%
*
[100%
OGP
–
20%
Original
Commission
–
GLR
–
5%
Over-‐rider
–
10%
Reinsurer’s
Expenses])
For
example,
if
£100
OGP
was
ceded
and
the
losses
payable
by
the
Reinsurer
were
£47
the
Profit
Commission
would
be:
Profit
Commission
=
MAX(0,
22.5%
*
[£100
-‐
£20
-‐
£47
-‐
£5
-‐
£10])
...
or
£4.05.
Break-‐even
Insurer’s
GLR
For
a
given
unit
of
premium,
an
Insurer
has
two
choices:
Retain
or
Reinsure.
If
the
Insurer
retains
the
premium
its
profit
will
be
(using
percentages
of
OGP
to
keep
it
clear):
100%
OGP
–
20%
Original
Commission
–
GLR
If
the
Insurer
reinsures
the
premium
its
profit
will
be
(using
percentages
of
OGP
to
keep
it
clear):
5%
Over-‐rider
+
1.5%*30%
Reinsurance
Brokerage
Rebate
+
MAX(0,
22.5%
*
Reinsurer’s
Profit)
Note
that
in
both
instances
the
whole
of
the
Insurer’s
Operating
Expenses
of
16%
of
OGP
has
been
excluded.
That
is
because
either
way
the
Insurer
will
incur
these
expenses.
This
will
become
more
apparent,
and
the
importance
thereof,
later
in
this
paper.
Thus
the
profit
referred
to
above
is
more-‐
correctly
‘profit,
pre-‐
Operating
Expenses’.
Equating
the
two
sides
of
this
equation
and
re-‐arranging:
Break-‐even
Insurer’s
GLR
=
100%
OGP
–
20%
Original
Commission
–
5%
Over-‐rider
–
1.5%*30%
Reinsurance
Brokerage
Rebate
–
MAX(0,
22.5%
*
Reinsurer’s
Profit)
It
turns
out
that
at
the
relevant
GLR
that
MAX(0,
22.5%
*
Reinsurer’s
Profit)
=
0
so
that
term
may
be
discarded,
so
that
generically
the
Break-‐even
Insurer’s
GLR
=
100%
–
Original
Commission
–
Over-‐rider
–
Reinsurance
Brokerage
Rebate
which
for
my
example
is
74.55%
(i.e.
100%
-‐
20%
-‐
5%
-‐
1.5%*30%).
3. Richard
Hartigan
3
21
August
2015
This
is
quite
profound
and
requires
amplification:
absent
capital
considerations
(I
shall
address
these
later)
if
the
expected
GLR
is
less
than
the
break-‐even
Insurer’s
GLR
(e.g.
74.55%)
the
Insurer
would
be
unwise
to
contemplate
a
quota
share
reinsurance
treaty,
for
any
quantum.
Conversely,
if
the
expected
GLR
is
greater
than
the
break-‐even
Insurer’s
GLR
(e.g.
74.55%)
the
Insurer
should
seek
to
reinsure
as
much
as
possible
(up
to
100%
of
OGP,
if
possible).
A
graph
makes
things
clearer:
Note
that
in
my
example
that
at
the
break-‐even
Insurer’s
GLR
the
Insurer
will
make
a
loss
after
factoring
in
Operating
Expenses.
In
my
example
that
would
be
74.55%
break-‐even
Insurer’s
GLR
+
20%
Original
Commission
+
16%
Operating
Expenses
=
110.55%
combined
ratio.
It
is
absolutely
critical
to
realise
that
the
correct
response
from
an
Insurer’s
point-‐of-‐view
when
faced
with
a
loss-‐making
class
of
business
is
NOT
to
automatically
“reinsure
as
much
as
possible”.
In
fact,
in
my
example,
expected
combined
ratios
between
100%
and
110.55%
should
not
trigger
that
response,
although
naturally
it
should
trigger
an
intense
review
of
whether
or
not
to
continue
to
underwrite
that
class
of
business.
Note:
if
the
Insurer’s
Operating
Expenses
<
(Over-‐rider
+
Reinsurance
Brokerage
Rebate),
which
is
NOT
the
case
in
the
example
I
have
constructed,
then
at
the
break-‐even
Insurer’s
GLR
the
Insurer
will
make
a
profit
(not
loss)
after
factoring
in
Operating
Expenses.
Break-‐even
Reinsurer’s
GLR
A
Reinsurer’s
break-‐even
loss
ratio
is
slightly
different.
Here,
the
Reinsurer’s
alternative
is
to
either
write
or
not
write
the
business.
With
respect
to
OGP
ceded,
I
set
the
following
to
equate
to
zero:
100%
OGP
–
20%
Original
Commission
–
GLR
–
5%
Over-‐rider
–
1.5%
Reinsurance
Brokerage
–
MAX(0,
22.5%
*
Reinsurer’s
Profit)
–
Reinsurer’s
actual
incremental
expenses
(not
the
Reinsurer’s
Expenses
used
in
the
Profit
Commission
calculation;
here:
8%,
not
10%)
Re-‐arranging
to
make
GLR
the
subject:
4. Richard
Hartigan
4
21
August
2015
Break-‐even
Reinsurer’s
GLR
=
100%
–
Original
Commission
–
Over-‐rider
–
Reinsurance
Brokerage
–
MAX(0,
22.5%
*
Reinsurer’s
Profit)
–
Reinsurer’s
actual
incremental
expenses
It
turns
out
that
at
the
relevant
GLR
that
MAX(0,
22.5%
*
Reinsurer’s
Profit)
=
0
so
that
term
may
be
discarded,
so
that
generically
the
Break-‐even
Reinsurer’s
GLR
=
100%
–
Original
Commission
–
Over-‐rider
–
Reinsurance
Brokerage
–
Reinsurer’s
actual
incremental
expenses
which
for
my
example
is
65.50%
(i.e.
100%
-‐
20%
-‐
5%
-‐
1.5%
-‐
8%).
What
is
fascinating
about
this
outcome
is
that
in
all
circumstances
the
break-‐even
Reinsurer’s
GLR
<
break-‐even
Insurer’s
GLR,
since
additionally
the
break-‐even
Reinsurer’s
GLR
has
to
allow
for
the
full
(pre-‐Rebate)
Reinsurance
Brokerage
and
the
Reinsurer’s
actual
incremental
expenses.
Prima
facie
there
will
be
no
overlap
between
an
Insurer’s
desire
to
cede
premium
and
a
Reinsurer’s
desire
to
underwrite
that
same
premium.
Note:
if
Reinsurer’s
Expenses
<
(Reinsurance
Brokerage
+
Reinsurer’s
actual
incremental
expenses),
which
is
NOT
the
case
in
the
example
I
have
constructed,
then
the
MAX(0,
22.5%
*
Reinsurer’s
Profit)
term
>
0
and
should
not
be
discarded.
Care
will
be
needed
by
the
reader
to
correctly
allow
for
this
in
the
appropriate
circumstances.
In
those
circumstances
the
Break-‐even
Reinsurer’s
GLR
will
be
slightly
lower.
Capital
Considerations
The
break-‐even
Insurer’s
GLR
is
a
useful
concept
when
capital
is
not
a
consideration
(i.e.
the
Insurer
has
ample
capital
for
the
class
of
business).
What
happens
if
this
is
not
the
case?
I
start
by
assuming
the
expected
GLR
<
the
break-‐even
Insurer’s
GLR,
for
if
this
were
not
the
case
the
Insurer’s
path
would
be
clear:
seek
to
reinsure
100%
of
the
premium.
I
assume
the
Insurer
has
a
fixed
(non-‐changeable)
quantum
of
capital.
I
also
assume
that
an
Insurer
references
the
modelled
1-‐in-‐200
year
GLR
(GLR^)
to
assess
risk
(and
that
underwriting
(premium)
risk
is
the
only
risk
the
Insurer
faces,
and
therefore
is
the
only
risk
that
must
be
considered
for
capital
purposes).
The
Insurer
must
scale
the
quota
share
reinsurance
treaty’s
cession
so
that
at
that
modelled
1-‐in-‐200
year
GLR
(GLR^)
outcome
the
Insurer’s
loss
leads
to
no
more
than
the
desired
erosion
of
capital.
The
Insurer’s
total
profit
(which
should
be
negative
at
the
modelled
1-‐in-‐200
year
GLR
(GLR^)
outcome)
is
as
follows
(using
percentages
of
OGP
to
keep
it
clear):
(100%
-‐
QS)
*
[100%
OGP
–
20%
Original
Commission
–
GLR^]
PLUS
QS
*
[5%
Over-‐rider
+
1.5%*30%
Reinsurance
Brokerage
Rebate]
(once
again
recognising
that
at
the
relevant
GLR^
that
MAX(0,
22.5%
*
Reinsurer’s
Profit)
=
0
so
that
term
may
be
discarded)
MINUS
5. Richard
Hartigan
5
21
August
2015
100%
*
16%
Operating
Expenses
and
I
assume
the
Insurer
does
not
wish
to
lose
more
than
Y%
of
OGP
of
its
capital
at
that
modelled
1-‐in-‐200
year
GLR
(GLR^)
outcome
(i.e.
the
Insurer’s
risk
appetite).
Re-‐arranging
to
make
QS
(percentage
of
OGP
ceded)
the
subject:
QS
=
(100%
–
Original
Commission
–
GLR^
+
Y%
–
Operating
Expenses)
(100%
–
Original
Commission
–
GLR^
–
Over-‐rider
–
Reinsurance
Brokerage
Rebate)
QS
=
(100%
–
20%
–
GLR^
+
Y%
–
16%)
(100%
–
20%
–
GLR^
–
5%
–
1.5%*30%)
Since
this
is
a
two-‐factor
model
(i.e.
capital
at
risk
(Y%
of
OGP)
and
the
modelled
1-‐in-‐200
year
GLR
(GLR^))
the
result
is
as
follows:
QS
(percentage
of
OGP
ceded)
Y%
of
OGP
5%
10%
15%
20%
25%
30%
Modelled
75%
>100%
>100%
<0%
<0%
<0%
<0%
1-‐in-‐200
80%
>100%
>100%
18.3%
<0%
<0%
<0%
Year
85%
>100%
>100%
57.4%
9.6%
<0%
<0%
GLR
90%
>100%
>100%
71.2%
38.8%
6.5%
<0%
(GLR^)
95%
>100%
>100%
78.2%
53.8%
29.3%
4.9%
100%
>100%
>100%
82.5%
62.9%
43.2%
23.6%
Taking
an
example,
if
an
Insurer’s
modelled
1-‐in-‐200
year
GLR
(GLR^)
outcome
was
85%
and
the
Insurer
wished
to
lose
no
more
than
20%
of
OGP
in
a
given
year
then
the
Insurer
should
seek
out
a
quota
share
reinsurance
treaty
cession
of
9.6%
of
OGP
(retaining
the
remaining
90.4%
of
OGP).
Since
the
expected
GLR
<
the
break-‐even
Insurer’s
GLR
this
9.6%
quota
share
reinsurance
treaty
cession
is
sub-‐optimal
from
the
Insurer’s
expected
profit
point-‐of-‐view,
but
wholly
necessary
from
the
Insurer’s
capital
point-‐of-‐view.
Raising
Capital
Continuing
on
from
the
previous
section:
how
much
capital
would
the
Insurer
need
to
raise
in
order
to
dispense
with
the
sub-‐optimal
9.6%
quota
share
reinsurance
treaty
cession
altogether,
and
what
return
could
be
achieved
on
that
incremental
capital?
I
continue
to
assume
the
Insurer’s
modelled
1-‐in-‐200
year
GLR
(GLR^)
outcome
is
85%.
QS
(percentage
of
OGP
ceded)
Y%
of
OGP
5%
10%
15%
20%
21%
30%
Modelled
75%
>100%
>100%
<0%
<0%
<0%
<0%
1-‐in-‐200
80%
>100%
>100%
18.3%
<0%
<0%
<0%
Year
85%
>100%
>100%
57.4%
9.6%
0.0%
<0%
GLR
90%
>100%
>100%
71.2%
38.8%
32.4%
<0%
(GLR^)
95%
>100%
>100%
78.2%
53.8%
48.9%
4.9%
100%
>100%
>100%
82.5%
62.9%
58.9%
23.6%
6. Richard
Hartigan
6
21
August
2015
If
the
20%
of
OGP
capital
at
risk
is
increased
to
21%
of
OGP
capital
at
risk
one
can
see
that
the
QS
(percentage
of
OGP
ceded)
moves
from
9.6%
to
0.0%.
By
raising
the
equivalent
of
1%
of
OGP
of
capital
(from
20%
to
21%)
the
Insurer
can
dispense
with
the
quota
share
reinsurance
treaty
altogether.
The
expected
profit
re-‐captured
=
QS
*
(profit
at
expected
GLR
if
retained
-‐
profit
at
expected
GLR
if
reinsured).
In
my
example
that
would
be:
9.6%
*
(30%
OGP
–
8.83%
OGP)
=
2.03%
of
OGP.
The
expected
Return
On
Equity
(ROE)
>
100%
in
this
case
(2.03%
/
1%)
...
the
Insurer
should
clearly
raise
the
incremental
capital
and
dispense
with
the
quota
share
reinsurance
treaty
altogether.
The
fallacy
of
the
NNLR
The
Net
Net
Loss
Ratio
(NNLR)
is
a
popular
loss
ratio
calculation
used
in
the
London
Market.
The
first
Net
signifies
net
of
Original
Commission;
the
second
Net
signifies
that
only
retained
losses
and
retained
premium
are
used
in
the
loss
ratio
calculation.
NNLR
=
(100%
-‐
QS)
*
Gross
Loss
–
QS
*
Profit
Commission
(100%
-‐
QS)
*
(100%
OGP
–
20%
Original
Commission)
+
QS
*
(Over-‐rider
+
Reinsurance
Brokerage
Rebate)
Note:
the
decision
whether
to
include
the
Profit
Commission,
the
Over-‐rider,
and
the
Reinsurance
Brokerage
Rebate
as
either
a
negative
in
the
numerator
or
a
positive
in
the
denominator
is
largely
a
matter
of
choice.
I
have
chosen
to
allocate
these
as
I
believe
is
market
standard.
For
reference
the
Gross
Net
Loss
Ratio
(GNLR)
and
the
GLR
calculations
are
shown:
GNLR
=
Gross
Loss
100%
OGP
–
20%
Original
Commission
GLR
=
Gross
Loss
100%
OGP
I
start
by
assuming
the
expected
GLR
is
50%
(and
note
this
is
lower
than
the
break-‐even
Insurer’s
GLR
of
74.55%),
and
I
vary
the
QS
(percentage
of
OGP
ceded).
For
this
example
only
OGP
=
£300,000.
7. Richard
Hartigan
7
21
August
2015
At
0.0%
QS
the
Insurer
Gross
Profit
(no
QS)
(LHS)
=
the
Insurer
Net
Profit
(post
QS)
(LHS)
=
£42,000,
the
expected
GLR
(RHS)
=
50%
(given),
and
the
GNLR
(RHS)
=
the
NNLR
(RHS)
=
62.5%.
As
the
QS
increases
the
expected
GLR
(RHS),
and
the
GNLR
(RHS)
are
held
constant,
and
(of
course)
the
Insurer
Gross
Profit
(no
QS)
(LHS)
remains
constant.
What
seems
incongruent
though
is
that
at
the
same
time
the
Insurer
Net
Profit
(post
QS)
(LHS)
is
declining
the
NNLR
(RHS)
is
also
declining.
How
can
this
be?
The
reason
the
Insurer
Net
Profit
(post
QS)
is
declining
is
simple:
the
expected
GLR
(RHS)
at
50%
is
lower
than
the
break-‐even
Insurer’s
GLR
(74.55%).
Absent
capital
constraints
the
quota
share
reinsurance
treaty
is
not
in
the
Insurer’s
interest
(for
any
quantum),
and
the
net
result
to
the
Insurer
becomes
poorer
and
poorer
as
the
QS
percentage
increases
(e.g.
at
a
70.0%
QS
the
Insurer
Net
Profit
(post
QS)
is
negative).
But
this
still
leaves
the
conundrum:
why
is
the
NNLR
(RHS)
also
declining
(thus
falsely
indicating
that
the
quota
share
reinsurance
treaty
is
favourable)?
The
net
premium
retained
decreases
linearly
as
the
QS
increases
and
is
flattered
by
the
Over-‐rider
and
the
Reinsurance
Brokerage
Rebate
which
are
modest
in
absolute
terms
but
become
bigger-‐and-‐bigger
in
relative
terms.
The
net
loss
retained
decreases
linearly
as
the
QS
decreases
and
is
flattered
by
the
off-‐setting
Profit
Commission.
The
result
is
progressively
falling
NNLRs.
What
is
missing,
and
what
is
absolutely
critical
to
realise,
is
that
the
smaller-‐and-‐smaller
net
premium
retained
(modestly
bolstered
by
the
Profit
Commission,
the
Over-‐rider,
and
the
Reinsurance
Brokerage
Rebate)
must
wholly
support
the
Insurer’s
Operating
Expenses
(16%
of
OGP
in
my
example).
At
a
certain
point
(somewhere
between
60%
QS
and
70%
QS
in
my
example)
the
Insurer’s
Operating
Expenses
completely
swamp
the
net
premium
retained
and
a
negative
profit
(i.e.
loss)
results.
The
NNLR
is
a
terrible
measure
of
the
success
(or
otherwise)
of
a
quota
share
reinsurance
treaty.
I
also
note
that
in
all
circumstances
the
NNLR
<
the
GNLR
(another
false
indication
that
the
quota
share
reinsurance
treaty
is
favourable).
8. Richard
Hartigan
8
21
August
2015
Catastrophe-‐exposed
classes
of
business
For
the
purposes
of
this
section
I
assume
that
the
class
of
business
now
has
catastrophe
exposure.
Since
I
have
already
demonstrated
that
an
Insurer
should
only
contemplate
a
quota
share
reinsurance
treaty
if
the
Insurer
was
capital
constrained,
I
must
conclude
that
is
the
case
here
too.
I
further
assume
that
the
quota
share
reinsurance
treaty
has
no
Event
Limit.
An
Event
Limit
limits
the
quantum
of
losses
an
Insurer
can
cede
to
the
Reinsurer
in
the
event
of
a
catastrophic
loss.
The
idea
is
that
the
Reinsurer
wants
to
avoid
offering
‘cheap’
catastrophe
cover.
Often
the
opposite
problem
occurs.
Looking
again
at
a
previous
graph,
slightly
augmented:
At
a
50%
expected
GLR
the
profit
ceded
to
the
Reinsurer
is
21.17%
(indicated
by
{
)
of
OGP
ceded
(i.e.
30%
-‐
8.83%).
This
figure
is,
in
effect,
how
much
the
Insurer
is
paying
the
Reinsurer
due
to
the
Insurer’s
capital
constraints.
It
is
compensation
for
both
catastrophe
exposure
and
attritional
exposure.
Is
the
Insurer
paying
the
Reinsurer
too
much
for
the
catastrophe
exposure
element?
Until
one
benchmarks
the
cost
of
buying
a
catastrophe
excess
of
loss
reinsurance
programme
with
an
appropriate
attachment
and
limit
at
market
rates
it
is
impossible
to
know.
The
relative
contribution
of
the
catastrophe
exposure
element
and
the
attritional
exposure
element
to
the
Insurer’s
capital
inadequacy
will
also
need
to
be
determined.
It
may
be
that
the
Insurer
can
shed
the
catastrophe
exposure
element
cheaply
via
a
catastrophe
excess
of
loss
reinsurance
programme
and
that
the
residual
attritional
exposure
element
is
within
the
Insurer’s
existing
capital
capacity.
In
that
case
the
correct
course
is
clear.
Note,
however,
that
if
the
Insurer
has
ample
capital
and
that
quantum
of
capital
is
fixed
(non-‐
changeable)
then
reinsurance
of
any
type
is
moot
(at
the
assumed
expected
GLR).
Investment
Income
I
will
be
criticised
by
purists
for
not
allowing
for
investment
income.
Quota
share
reinsurance
treaties
generally
result
in
significant
transfer
of
premium
and
so
investment
income
may
be
significant.
However,
in
the
current
environment
of
near-‐zero
interest
rates
I
prefer
to
leave
investment
income
as
the
tie-‐breaker
if
an
Insurer’s
reinsurance
decision
is
marginal.
In
that
case
the
Insurer
should
not
reinsure:
by
reinsuring
the
Insurer
is
forgoing
investment
income
on
OGP
ceded
(less
Original
Commissions).
9. Richard
Hartigan
9
21
August
2015
Reinsurer
Credit
Risk
That
significant
transfer
of
premium
will
also
invoke
reinsurer
credit
risk,
another
element
for
which
I
have
made
no
allowance.
Again,
I
prefer
to
leave
reinsurer
credit
risk
as
the
tie-‐breaker
if
an
Insurer’s
reinsurance
decision
is
marginal.
Again,
in
that
case
the
Insurer
should
not
reinsure:
by
reinsuring
the
Insurer
is
accepting
that
reinsurer
credit
risk.
Conclusions
Some
fairly
profound
conclusions
emerge.
Scenario
1:
an
Insurer
has
ample
capital
and
that
quantum
of
capital
is
fixed
(non-‐changeable):
• where
expected
GLR
<
break-‐even
Reinsurer’s
GLR
o Reinsurer
should
be
keen
to
reinsure
o Insurer
should
not
be
keen
to
reinsure
• where
break-‐even
Reinsurer’s
GLR
<
expected
GLR
<
break-‐even
Insurer’s
GLR
o Reinsurer
should
not
be
keen
to
reinsure
o Insurer
should
not
be
keen
to
reinsure
• where
break-‐even
Insurer’s
GLR
<
expected
GLR
o Reinsurer
should
not
be
keen
to
reinsure
o Insurer
should
be
keen
to
reinsure
i.e.
there
is
no
commonality
of
interest
to
reinsure.
Where
an
Insurer
has
ample
capital
and
that
quantum
of
capital
is
fixed
(non-‐changeable)
quota
share
reinsurance
treaties
are
inappropriate
in
all
circumstances.
Scenario
2:
an
Insurer
has
inadequate
capital
and
that
quantum
of
capital
is
fixed
(non-‐changeable):
• where
expected
GLR
<
break-‐even
Reinsurer’s
GLR
o Reinsurer
should
be
keen
to
reinsure
o Insurer
should
be
keen
to
reinsure
• where
break-‐even
Reinsurer’s
GLR
<
expected
GLR
<
break-‐even
Insurer’s
GLR
o Reinsurer
should
not
be
keen
to
reinsure
o Insurer
should
be
keen
to
reinsure
• where
break-‐even
Insurer’s
GLR
<
expected
GLR
o Reinsurer
should
not
be
keen
to
reinsure
o Insurer
should
be
keen
to
reinsure
i.e.
there
is
a
commonality
of
interest
to
reinsure
only
where
the
expected
GLR
<
break-‐even
Reinsurer’s
GLR.
Since
the
Insurer
must
reinsure
from
a
capital
point-‐of-‐view
(i.e.
the
Insurer
has
no
choice)
then
in
all
other
circumstances
a
method
must
be
found
to
raise
the
break-‐even
Reinsurer’s
GLR
above
the
expected
GLR,
typically
by
reducing
demands
with
respect
to
the
Over-‐rider
and/or
the
Reinsurance
Brokerage.
Should
a
commonality
of
interest
to
reinsure
be
found
and
a
quota
share
reinsurance
treaty
be
contemplated
the
Insurer
must
then
determine
if
catastrophe
exposure
(if
any)
can
be
better
shed
via
a
catastrophe
excess
of
loss
reinsurance
programme.
Scenario
3:
an
Insurer
has
inadequate
capital
but
the
Insurer
could
raise
capital
if
economically
sensible:
• firstly,
determine
the
quantum
of
capital
that
must
be
raised
• secondly,
determine
the
profit
re-‐captured
at
the
expected
GLR
• thirdly,
determine
if
the
profit
re-‐captured
can
adequately
service
(expected
ROE)
the
quantum
of
capital
that
must
be
raised
10. Richard
Hartigan
10
21
August
2015
Summary
The
circumstances
in
which
a
quota
share
reinsurance
treaty
should
be
agreed
are
limited
(broadly)
to
Insurers
with
inadequate
capital
where
the
expected
GLR
<
break-‐even
Reinsurer’s
GLR.
In
that
circumstance
the
quota
share
reinsurance
treaty
will
be
sub-‐optimal
from
the
Insurer’s
expected
profit
point-‐of-‐view,
but
wholly
necessary
from
the
Insurer’s
capital
point-‐of-‐view.
In
all
other
circumstances
the
use
of
a
quota
share
reinsurance
treaty
will
be
of
doubtful
value
to
an
Insurer.
Editing
Notes
Version
1:
30
July
2015,
original
Version
2:
21
August
2015,
various
typographical
corrections
(especially
formulae
on
Page
5)