Reinsurance - Tiller and Tiller - Chapter 4 - TRADITIONAL REINSURANCE
Yearly Renewable Term (YRT)
- NAR Calc
- Level Term Policies
- Decreasing Term Policies
- Permanent Policies
- Universal Life
- Retention Determination
- Pro Rata
- Level or Constant Retention
- Formula Retention
- Premium Scales
- Normally Select and Ultimate
- often no first year premium (assists with surplus strain)
- can have negative first year premium to further offset production bonuses and the like
- reins prems often stated as percanetage of basic plan premium (or COI if IS)
- used to be experience rated
- normally policy year (vs calendar year) rate scales
- many UL on MRT basis
- Premium Calculation
- YRT rate per thousand * reinsured NAR + substd + cession fee (rare)
- normally paid on an annual basis
- substandard normally a multiple
- tmep or flat extras normally coinsured
- ancillary benefits (WVR, GIO, Payor) typically coinsurance
- ADB usually YRT (rarely by age/duration) often on a bulk basis
- Uses of YRT
- Trad Whole Life
- IS products (usually with no dur 1 premium and rates as pct of COI)
- custom scales often developed to match slope of term premium scale
- some DI benefits
- Other Considerations
- Used to transfer only Mortality or Morbidity risks
- Typically lower profit objective since limited risk, therefore obtainable at lower cost than co or mod-co
- admin is fairly straightforward fo rfixed benefit products
- YRT does not provide relief from def reserves
- YRT premiums must be paid even if base policy goes under nonforfeiture (but amount may be adjusted)
- See book (p75) for illustration
Coinsurance
- coverage is same form as individual policy
- reinsurer establishes proportionate share of policy reserves
- shares proportionately to excess mortality or morbidity, lapses, surrenders, etc.
- Coinsurance Premiums and Allowances
- premium usually proportionate to gross premium
- for banded policies, can
- - reins premium based on banded gross premium, then common set of allowances for all bands
- most common and easiest to understand
- - vary allowances by band
- complicates admin but allows consistent margins by band
- - reins prem and allowance for all bands is equal
- simplifies admin, increases margin for ceding co on smaller band sales
- ceding co typically retains 100% of policy fee
- coins typically follows u/w (S/NS etc)
- sometimes allowances vary by age and/or sex
- can be experience rating
- sometimes first year allowance > 100%
- Coinsurance Premium and Allowance Calculations
- allocances typically determined unique for each policy (product)
- typically paid on annual basis
- substd more complicated - vary by type of extra and length they apply
- WVR/GIO/Payor usually consured w/ generic allowances 75-85% 1st year, 10-15% renewal
- ADB usually flat rate YRT
- Uses of Coinsurance
- can be used on anything
- for life, common on Term where very little CV buildup, therefore minimal investment risk
- used w/ CV products to pass strain or investment risk to reinsurer
- Policyholder Dividends
- < 1990s, uncommon for reinsurer to share in PO divs
- may be a problem if big block w/ large portion ceded as co doesn't control those assets
- currently reinsurers SOMETIMES participate, but only in illustrated scale, not in up or down changes
- NY Reg 102 says reinsurer must participate in divs, including scale changes if ceding co wants reserve credit
- Other Considerations
- reinsurers rarely participate in policy loans
- reinsurer typically remburses for premium taxes on ceded portion
- RPU - reins is adjusted and no further premiums paid
- ETI - no more prems, but coverage for appropriate duration
- sometime at ETI/RPU, reinsurer will pay CSV to ceded co and terminate reins
- reserve credits if reins is admitted/accredited
- will pass deficiency reserve as well as std reserves
- admin is relatively complex since need to calc prem, pay db, calc expense allowance, reserves and apyments of cash surrenders
- Illustrations - p 89
Modified Coinsurance - ModCo
- diff from coinsurance is stat vx on ceded portion is obligation of and held by ceding co
- reinsurer has to fund reserve increases (less credit for investment income)
- Origins - Unknown
- ModCo Prems and Allowances
- ModCo Prem and Allowance Calculations
- similar to coins
- WVR/GIO/Payor typically coins even if base is ModCo
- ADB typically flat YRT rate
- ModCo Reserve Adjustment
- Ening Policy Reserves - Beginning Policy Reserves - Interest on Beg Pol Vx
- if >0 reinsurer pays ceding co. If < 0, other way
- historically an annual calc
- currently (typically) quarterly
- ModCo Int rate is defined in treaty
- - historically could be defined in terms of ceding co portfolio rate, rate of return on reinsured blocks assets, new money rate of return, or outside index
- - sometimes a fixed rate
- - if ModCo rate = ceding co rate of return, result to ceding co is same as if they used coins
- - if ModCo rate = reins co rate of return, result to reins is same as if they used coins
- cap g/l not shared w/ reinsurer
- - NAIC model reg changes that since ALL significant risk must be transfered
- Uses of ModCo
- primarily for products that develop CV - especially par
- in 80s, used to reduce FIT (transfered investment income to u/w income)
- - tax law changes stopped that
- Other Considerations
- Eliminates some problems w/ coins
- - no Vx credit questions since ceding co maintains policy Vx
- - eliminates problem of policy loan participation as well (same reason)
- - ceded co has more control over investments
- Main drawback
- more difficult to admin because of Reserve Adjustment Calculation
- Illustrations - p 100
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