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?

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.

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