Miscellaneous Facts

wilsonchan18wilsonchan18
in Frei.RskTrans

Hi,

Why do we need the Interest Rate? Will it be used under the ERD Method for Cashflow Discounting for the Freq and Sev component?

Also, battlequiz says only the Cashflows between Reinsurer and Cedant are to be considered for ERD whereas Reinsurance Expense will not be considered. Those cashflows should be the Claim, corresponding Reinsurance Recovery and Reinsurance Premium, am I right?

And Can I confirm that all the "Practical Consideration" are for the ERD and 10-10 rule methods only, since these are the only 2 quantitative methods for Risk Transfer Test.

Why Pricing Assumption adoption may work well for small and immature books of business Risk Transfer Test?

Thanks and Warm Regards,
Wilson

Comments

  • Staff-T1Staff-T1

    Hi,

    Yes to your first point
    Yes to your second point and also including maintenance fees to avoid commutation
    Yes to your third point
    For the fourth point, this is because we may not have much of our own historical data so using reinsurance pricing data has more credibility

  • wilsonchan18wilsonchan18
    edited April 2022

    Hi T1,

    Many thanks. May I know what this maintenance fees is about? Is this paid from Insurer to Reinsurer and how can it avoid Commuation?

    Haven't really realized that this Pricing Assumption means from the Reinsurer one. lol
    But since this is Risk Transfer Test, shouldn't we only focus on the Ceded Risk. Meaning that the Direct Insurer (Cedant) Premium (i.e. Pricing Assumption) should not be the focus just like same reason go to Profit Comm.

    Thanks and Warm Regards,
    Wilson

  • Staff-T1Staff-T1

    It's paid to the reinsurer to avoid automatic commutation.
    I am not sure what you are implying for your second point? The focus is still on ceded risk but we just use the reinsurer's assumptions because we have no data on our end. We do not have our own pricing assumptions because our data is thin

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