Other Forms of Reinsurance: Additional cards

Question 1

Features of Finite Reinsurance

Answer 1

• limited assumption of risk by RI
• Multi year contract
• explicit inclusions of investment income
• sharing of the results with the cedant
• risk transfer and risk financing are combined e.g time and distance

Question 2

Types of Financial Reinsurance Products

Answer 2

• time and distance deals
• spread loss covers
• financial quota share
• industry loss warranties
• Structured Finance

Question 3

Structured Finance

Answer 3

• Provides the insurer with credit enhancement, which lowers cost of borrowing.
• The typical financing solution provided by the Reinsurer is a credit enhancement in which the Reinsurer provides a financial guarantee or credit insurance wrap to the institution borrowing from the capital markets.

Question 4

Types of Capital Market Products: Risk transferred to capital markets

Answer 4

• Committed /contingent capital.
• Securitasation i.e.
  
  • insurance linked securities
  • credit securitization
  • motor securitization
• These alternative risk transfer use derivatives and variations of trade credit insurance.

Question 5

Committed (or contingent) capital

Answer 5

• It is an agreement to provide capital to an insurer after a specified event occurs and causes financial distress.
• The insurer purchases an option to issue its securities at a predetermined price in the case the event happens.

Question 6

Insurance Linked Securities

Answer 6

• Increase RI Capacity
• Often in form of Catastrophe Bonds
• The bonds allow insurers to transfer HSLF CAT risks to capital markets and spread it among investors.
• If event occurs, no payout of interest and principal.
• If event does not occur b4 maturity, investors receive interest and principal

Question 7

Roles of Credit securitisation

Answer 7

• Enhancing the credit worthiness of debt instruments.
• providing capital relief to banks by insuring loan portfolio.
• providing credit protection to companies

Question 8

Motor securitisation

Answer 8

• certain aspects of the motor insurer’s portfolio are passed to the investment market.
• e.g insurer issues a bond where coupon PMT depends on claims experience of motor portfolio