32 slides from Munchener Ruckversicherungs-gesellschaft's technical presentation, Sep 11, 2023
Slide 1: LIMA Programme: Reinsurance Features
NOT IF, BUT HOW LIMA Programme Reinsurance Features 11/09/2023 Suhail Solim Image: Munich Re
Slide 2: Agenda
Agenda Reinsurance Features Proportional Non-Proportional o Commissions (flat, sliding scale and profit commissions) o Reinstatements o Loss corridors / participation o Annual Aggregate Deductible (AAD) o Annual Aggregate Limit (AAL) o Layering Reinsurance Features 04 October 2023 2
Slide 3: Proportional Reinsurance Features
Alternative Image: Munich Re 01 Proportional Reinsurance Features
Slide 4: Proportional Reinsurance Features
Proportional Reinsurance Features Flat Commission Loss Participation • Easy, simple and straight forward • Fixed Percentage of ceded original gross premium Profit Commission Sliding Scale Reinsurance Features 04 October 2023 4
Slide 5: Flat Commission
Flat Commission as fixed percentage of the ceded original gross premium Upon renewal: Percentage is negotiated according to Acquisition Quality of Results costs business Reinsurance Features 04 October 2023 5
Slide 6: Proportional Reinsurance Features
Proportional Reinsurance Features Flat Commission Loss Participation • Easy and straight forward • Fixed Percentage of ceded original gross premium Profit Commission Sliding Scale • Is a result dependent condition • Profit is shared after deducting losses, brokerage, commission and reinsurance expen
Slide 7: Profit Commission
Profit Commission Profit commission = No profit commission may Earned Premium be agreed for treaties with extreme fluctuations in claims experience, less Expected Losses e.g. earthquake, engineering less Brokerage treaties, liability treaties, less Commission credit/surety treaties. less Reinsurance
Slide 8: Proportional Reinsurance Features
Proportional Reinsurance Features Flat Commission Loss Participation/Corridor • Easy and straight forward • Is a result dependent condition • Fixed Percentage of ceded original • Losses between 2 specified loss ratios are gross premium shared between the insurer and reinsurer at a specified percenta
Slide 9: Loss Participation
Loss Participation Only for treaties with Z% high loss probabilities Y% } Loss participation of x% and thus poor performance. Introduced mainly to improve risk selection by the primary insurer Insured pays x% for losses between y% loss ratio and z% of loss ratio Reinsurance Features 04 October 2023
Slide 10: Proportional Reinsurance Features
Proportional Reinsurance Features Flat Commission Loss Participation • Easy and straight forward • Is a result dependent condition • Fixed Percentage of ceded original • Losses between 2 specified loss ratios are gross premium shared between the insurer and reinsurer at a specified percentage Profit
Slide 11: Sliding Scale
Sliding Scale High loss Low ratio commission Low loss High ratio commission Reinsurance Features 04 October 2023 11
Slide 12: Sliding Scale
Sliding Scale Reinsurance Features 04 October 2023 12
Slide 13: Sliding Scale Example
Sliding Scale Example LR Commission • QS Premium: ZAR 165,038,384 • Incurred Loss Ratio: ZAR 78,393,232 46.00% 51.50% 47.00% 50.50% 48.00% 49.70% • LR: 49.00% 48.70% • Commission: Minimum Maximum loss ratio – Actual loss ratio Commission = commission + Factor Maximum loss ratio – Minimum loss ratio
Slide 14: Sliding Scale Example
Sliding Scale Example LR Commission • QS Premium: ZAR 165,038,384 • Incurred Loss Ratio: ZAR 78,393,232 46.00% 51.50% 47.00% 50.50% 48.00% 49.70% • LR: 47.50% 49.00% 48.70% • Commission: Minimum Maximum loss ratio – Actual loss ratio Commission = commission + Factor Maximum loss ratio – Minimum loss
Slide 15: Sliding Scale Example
Sliding Scale Example LR Commission • QS Premium: ZAR 165,038,384 • Incurred Loss Ratio: ZAR 78,393,232 46.00% 51.50% 47.00% 50.50% 48.00% 49.70% • LR: 47.50% 49.00% 48.70% • Commission: 50.10% Minimum Maximum loss ratio – Actual loss ratio Commission = commission + Factor Maximum loss ratio – Minim
Slide 16: Sliding Scale: when to consider
Sliding Scale When should sliding scale be considered: o It can be used to provide an override to the client, but only when it is earned based on results (akin to a profit commission); therefore a sliding scale can be used to ensure that the client’s interests are deeply aligned with our own (reduce
Slide 17: Non-Proportional Reinsurance Features
Alternative Image: Munich Re 02 Non-Proportional Reinsurance Features
Slide 18: Non-Proportional Reinsurance Features
Proportional Reinsurance Features Reinstatements Annual Aggregate Deductible • Provides additional limit for the cedent • Reinstatements can be free or paid. Annual Aggregate Limit Layering Reinsurance Features 04 October 2023 18
Slide 19: Reinstatements
Reinstatements Main features: • The number of reinstatements indicates the amount of limits granted to the direct insurer per year, in addition to the original limit • For each layer of an XL-program, separate reinstatement conditions may be agreed • For each reinstatement, the corresponding reinsta
Slide 20: Reinstatements
Reinstatements 200 xs 100, 1 reinstatement, 100% reinstatement premium Reinsurance Features 04 October 2023 20
Slide 21: Reinstatements
Reinstatements Reinstatement agreements can differ per reinstatement and per layer Example: Layer 1 200 xs 100 1st Reinstatement 110% Reinstatement premium 2nd & 3rd Reinstatement 80% Reinstatement premium 4th Reinstatement free of charge Layer 2 300 xs 300 1st-3rd Reinstatement 120% Reinstatement p
Slide 22: Reinstatements Example
Reinstatements Example: 500,000 xs 200,000 with 2 Reinstatements 700,000 + + 200,000 Original limit Reinstatement 1 Reinstatement = 500,000 = 500,000 2 = 500,000 Total amount of Coverage per year = 3 * 500,000 = 1,500,000 Reinsurance Features 04 October 2023 22
Slide 23: Reinstatements Example
Reinstatements Example: 500,000 xs 200,000 with 2 Reinstatements loss 1: 700,000 XL- loss: 500,000 loss 2: 400,000 XL- loss: 200,000 loss 3: 600,000 XL- loss: 400,000 remaining capacity loss 1 400,000 loss 3 loss 2 Reinsurance Features 04 October 2023 23
Slide 24: Non-Proportional Reinsurance Features
Proportional Reinsurance Features Reinstatements Annual Aggregate Deductible • Provides additional capacity if capacity is vertically used up Annual Aggregate Limit Layering • Liability of reinsurer is limited to an Annual Aggregate Limit (AAL) • The AAL represents a multiple of the liability per la
Slide 25: Annual Aggregate Limit
Annual Aggregate Limit Reinsurance Features 04 October 2023 25
Slide 26: Non-Proportional Reinsurance Features
Proportional Reinsurance Features Reinstatements Annual Aggregate Deductible • The Annual Aggregate Deductible (AAD) characterises an amount in excess of the priority of • Provides additional capacity if an XL-treaty, which would be taken over by the reinsurer, but which is paid by the direct insure
Slide 27: Annual Aggregate Deductible
Annual Aggregate Deductible Reinsurance Features 04 October 2023 27
Slide 28: Non-Proportional Reinsurance Features
Proportional Reinsurance Features Reinstatements Annual Aggregate Deductible • The Annual Aggregate Deductible (AAD) characterises an amount in excess of the priority of • Provides additional capacity if an XL-treaty, which would be taken over by the reinsurer, but which is paid by the direct insure
Slide 29: Layering
Layering General proceeding: • The priority of the first layer equals to the priority of the whole cover, the priority of the following layers corresponds to the ceiling of the preceding layers (no gaps) • The sum of the limits of all layers corresponds to the total limit of the cover • Example: oTh
Slide 30: Layering
Layering Reinsurance Features 04 October 2023 30
Slide 31: Layering: reasons
Layering Reasons for layering (among others): • Generally, the placement of a subdivided XL program is easier: o Some reinsurers tend to accept high-premium (though claims-prone) for lower layers o Others prefer low-premium (but less exposed) top layers • Coverage according to varying scope of cover
Slide 32: Thank you for your attention!
NOT IF, BUT HOW Thank you for your attention! 11/09/2023 Suhail Solim Image: Munich Re