Insurance Risk Transfer and Categorization of Reinsurance Contracts

Despite the existence of numerous quantitative approaches to the categorization of financial reinsurance contracts, often insurance regulators may find the practical implementation of the task to be technically challenging. This research paper develops a simple, affordable, and robust regulatory method that can help insurance regulators to categorize financial reinsurance contracts as reinsurance or financial instruments. By reviewing real examples of different categorization methods, this paper explains how the proposed method standardizes such categorization. It also summarizes the existing pertinent literature on the subject with the view to helping insurance regulators to first apply some simple indicators to flag the main issues with financial reinsurance contracts that may need further reviews. Having identified the suspicious reinsurance contracts, supervisors may consider several solutions provided by the authors and, in some cases, requiring further quantitative testing of risk transfer contracts for categorization purposes, supervisors may also consider adopting the Standardized Expected Reinsurer's Deficit approach to contract testing presented in this paper. The approach advocates the use of a simple standardized stochastic method that would allow market participants and regulators to perform robust quantitative tests quickly and at an affordable cost. Besides addressing the obvious drawbacks of the "10-10" test, the proposed alternative method allows a great reduction in the technical challenges posed to the users of the Expected Reinsurer's Deficit approach based on full stochastic models with only a minimum loss of predictive accuracy.

Bibliographic Details

Main Authors:	Gurenko, Eugene N., Itigin, Alexander, Wiechert, Renate
Language:	English en_US
Published:	World Bank, Washington, DC 2012-12
Subjects:	ACCOUNTING STANDARD, ACCOUNTING STANDARDS, ACTUARIES, AMOUNT OF RISK, AUDITORS, BALANCE SHEET, BROKERAGE, BULK REINSURANCE, CAPITAL MARKETS, CAPITAL REQUIREMENTS, CASH FLOW, CASH FLOWS, CASH INFLOWS, CASUALTY, CATASTROPHE BONDS, CATASTROPHE LOSS, CATASTROPHES, CEDANT, CEDANTS, CEDING INSURER, CEDING INSURERS, CERTIFIED PUBLIC ACCOUNTANTS, COMMISSIONS, COMMODITY PRICE, COVERAGE, CREDIT RATING, CREDITOR, DEGREE OF RISK, DEPOSIT, DEPOSIT LIABILITY, DEVELOPING COUNTRIES, ECONOMIC RISK, ECONOMICS, EXCESS OF LOSS REINSURANCE, EXCHANGE RATE, FINANCIAL INSTITUTIONS, FINANCIAL INSTRUMENT, FINANCIAL INSTRUMENTS, FINANCIAL REINSURANCE, FINANCIAL REPORTING, FINANCIAL RISK, FINANCIAL RISKS, FOREIGN EXCHANGE, FRAUDULENT TRANSACTIONS, INNOVATIONS, INSPECTIONS, INSURANCE, INSURANCE COMMISSIONERS, INSURANCE COMPANY, INSURANCE INDUSTRY, INSURANCE POLICIES, INSURANCE PREMIUM, INSURANCE RISK, INSURANCE SUPERVISION, INSURANCE SUPERVISORS, INSURED EVENTS, INSURERS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INVESTMENT INCOME, LEVEL OF RISK, LIABILITY INSURANCE, LIMIT OF LIABILITY, LOSS RATIO, LOSS STATEMENT, MARKET PARTICIPANTS, MARKET PLAYERS, MATURE MARKETS, MATURITIES, MITIGATION, MOTIVATION, NATURAL CATASTROPHE, PARTICIPATIONS, PORTFOLIO, PORTFOLIOS, PREMIUMS, PROFIT SHARING, PROGRAMS, PROPORTIONAL REINSURANCE, QUOTA SHARE REINSURANCE, RATES, REGULATORY AUTHORITIES, REINSURANCE, REINSURANCE ACCOUNTING, REINSURANCE AGREEMENT, REINSURANCE COMMISSION, REINSURANCE COMPANIES, REINSURANCE CONTRACT, REINSURANCE CONTRACTS, REINSURANCE PREMIUMS, REINSURANCE TREATY, REINSURER, REINSURERS, RELIEF, RETURNS, RISK EXPOSURE, RISK MANAGEMENT, RISK TRANSFER, SETTLEMENT, SOLVENCY, TARGET RISK, TRANSACTION, TREATIES, TREATY REINSURANCE, UNDERWRITING, VALUATION,
Online Access:	http://documents.worldbank.org/curated/en/2012/12/17124490/insurance-risk-transfer-categorization-reinsurance-contracts https://hdl.handle.net/10986/12205
Tags:	Add Tag No Tags, Be the first to tag this record!