Risk Limiting Features

CanAct06CanAct06
in Frei.RskTrans

Risk Limiting Features:
18F #18 vs 16F #16 is an example
are non-risk-limit features the same as set-in-advance risk limit features?
Some of these examples for set-in-advance are also non-risk-limits like (timing of pmts, quarterly pmt of prem etc.)

17S #17 risk transfer {ans in CAS wrong.. 2) There are NO risk-limit features}
DISAD of using pricing ass for RTT?
Why reins pricing is for 'different purpose' - what exactly is this?
From Cas "RTT more risk load and less conservative than pricing". How does this make sense.
another risk limit: 16F #16 (the answers seem like it can go both ways, limits REins OR INS)

Comments

  • Staff-TSStaff-TS

    I will get to these in just a couple hours!

  • Staff-TSStaff-TS

    No. Set-in-advance terms (e.g., fixed premium schedules) are not inherently risk-limiting. They are contractual terms, and only those that limit the reinsurer's potential for loss are risk-limiting features. By contrast, loss ratio caps, aggregate limits, or swing-rated premiums can limit the reinsurer's losses and thus are considered risk-limiting features.

    Disadvantages of using pricing assumptions to assess risk transfer (section 3.3.6 of source):

    • Pricing assumptions often include a risk load → leads to higher expected losses, which inflates the appearance of risk.
    • Pricing is done with a conservative mindset, RTT should be neutral.
    • Pricing focuses on the full distribution, RTT focuses more on the tail risk (reinsurer losses).

    Pricing and risk transfer testing (RTT) serve different goals. Pricing is conservative and includes extra risk load to protect the reinsurer. RTT checks if enough risk is actually being transferred, focusing more on the chance of reinsurer loss. Using pricing assumptions in RTT can be misleading, they may make the contract look riskier than it is, making it more likely to pass RTT. That’s why pricing assumptions should be used carefully in RTT.

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