2016 Fall 25 (i)
About what percentage of a portfolio would likely qualify as "substantially all," and would such a cession qualify as a risk transfer even if there's no timing risk?
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About what percentage of a portfolio would likely qualify as "substantially all," and would such a cession qualify as a risk transfer even if there's no timing risk?
Comments
"Substantially all" is usually used for quota-share situations, and the text does not provide a threshold for the percentage. You'll need to guess according to the givens of the problem.
Could you give an example of the lack of timing risk you mention?
In this problem, the first contract doesn't include timing risk because there is a predetermined payment schedule for incurred losses from the reinsurer. As an extreme example, if the primary ceded 98% of losses, but there was a fixed payment schedule for those losses, would we consider this a risk transfer? Thanks.
No, we would not, according to SSAP 62. This is spelled out in paragraph 3 of page 15 of the Freihaut text.