Freihaut and Vendetti

Question 1

Freihaut and Vendetti - Requirements for reinsurance accounting

Answer 1

assume significant insurance risk; reasonably possible reinsurer will realize significant loss

Question 2

Freihaut and Vendetti - Compenents of insurance risk

Answer 2

Underwriting risk; timing risk

Question 3

Freihaut and Vendetti - Expected Reinsurer Deficit (ERD)

Answer 3

probability of underwriting loss * NPV of average severity of underwriting los

Question 4

Freihaut and Vendetti - Treatment of profit commission in risk transfer analysis

Answer 4

not considered; may effect economic results and future premium amounts but do not explicityly effect risk transfer

Question 5

Freihaut and Vendetti - Treatment of reinsurer expenses in risk transfer analysis

Answer 5

not included because should only consider cash flows between ceding company and reinsurer

Question 6

Freihaut and Vendetti - Treatment of discount rate in risk transfer analysis

Answer 6

constant rate should be used to only consider insurance risk; risk free rate is best

Question 7

Freihaut and Vendetti - Treatment of premiums in risk transfer analysis

Answer 7

use gross premiums; consider fees as premiums; take present value; simulating cash flows is better than expected or initial value

Question 8

Freihaut and Vendetti - Considerations using pricing assumptions in risk transfer analysis

Answer 8

careful of market driven results; pricing is conservative in opposite direction of risk transfer analysis