Reinsurance Needs of Life Insurers

High level consideration

Reinsurance is a way of reducing or eliminating risks. Since reinsurers wish to make a profit, a decision must be made by the ceding company to balance risks against cost of mitigating them.

Mortality risk

Smart (1970) [1]Life reinsurance  -  I C Smart 1970suggests the following drivers leading to reinsurance market:

  • protection agains mortality fluctuations
  • dealing with imparied lives
  • assisting with financial strain

with the risk of mortality fluctuations expanded on as follows:

  • protecting against insolvency
  • degree to which funds for one class of policies should be available for another  to what extent is this a concern to actuaries in this day and age?
  • minimising reduction in bonuses to WP policyholders

with the following types of protection sought:

  • against single event leading to large claim
  • against excessive number of claims
  • even though ok number claims, claims larger than expected

Smart (1970) [2]Life reinsurance  -  I C Smart 1970 goes on to say that the third bullet point coule easily be prevented by not writing risks above a determined issue limit that is palatable to the direct writer.  However there are advantages of writing larger amounts, and ceding the excess risk:

  • there may still be profit for the direct writer despite part of the risk reinsured
  • growing company
    • can increase retention in the future
    • gains experience on underwriting larger risks
  • recapture priviledge  -  enables retroactive retention increases