Timing of Payment

AndrewL

Hi,

Why should we not use prescribe payment pattern? I understand that it removes the timing uncertainty.

However, it is one of the thing we need to select as shown below

So I am confused why we should not use it

Staff-T1

According to SSAP 62, any reinsurance contracts that have prescribed payment patterns do not meet the risk transfer requirements. In order to have risk transfer in a reinsurance contract, there must be timing risk as well as underwriting risk. Prescribed payment plans remove the timing risk necessary for risk transfer. In order for the contract to contain timing risk the reinsurer must make “timely reimbursement payments.”

AndrewL

Hi @Staff-T1 ,

Thanks for your reply! I understand what you said above, but my problem here is that we say payment pattern is not useful because there is no timing risk. However, as shown in the screenshot above, we need to estimate this. Any thoughts @graham ?

Thanks

Staff-T1

Prescribed payment patterns means the payment pattern has been set in advance -> The implicit assumption above is that no payment patterns have been set in advance which means timing risk is still present