Life & Health
Reinsurance
An introduction
Parker Crosby & Ben Berning
What is reinsurance?
What is life insurance?
What is it like to work in reinsurance?
AGENDA
Intro to L&H Reinsurance | Seb Kleber
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What is reinsurance?
Insurance for insurance companies.
“The primary insurance risks…are mortality, investment, persistency, and
expense risk. Reinsurance allows one insurance company to pass some or
all of these insurance risks to another insurance company.”
Life Insurance Products and Finance
by David B. Atkinson, FSA & James W. Dallas, FSA
How does reinsurance work?
Policyholder
Claims
Premiums
Insurer
Part of Claims
Part of Premiums
Reinsurer
Intro to L&H Reinsurance | Seb Kleber
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Benefit of reinsurance to consumers and society
Provides
protection
Reduces
price
Intro to L&H Reinsurance | Seb Kleber
• Risk diversification
• Law of large numbers
• Reinsurers help set assumptions
• Capital efficiency
• Income smoothing
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Unique aspects of life insurance
Two main types of insurance products
• Protection products (Term insurance)
• Savings and wealth accumulation products
Underwriting
• Health is evaluated (medical tests, history…)
• Premium charged depends on health
• Future changes (DNA, Consumer data)???
Intro to L&H Reinsurance | Seb Kleber
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Life insurance is a long term business
Even short term plans can cover long periods, for
example the most popular term product is 20 year
term
Whole Life policy pays on the death of the life
insured whenever it occurs in the future.
Direct companies cannot cancel the policy, so they
expect the same from a reinsurer
Intro to L&H Reinsurance | Seb Kleber
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How does reinsurance work?

Indemnity vs. Assumption

Automatic vs. Facultative

Excess vs. Quota Share
– Retention example

Types of Reinsurance Contracts
– Coinsurance vs. Yearly Renewable Term (YRT)
Intro to L&H Reinsurance | Seb Kleber
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Indemnity vs. Assumption
Indemnity reinsurance
• Policyholder has no contractual relationship with the
reinsurance company
• Contractual relationship between the insurance
company and reinsurer remains
• Reinsurer reimburses ceding company for claims
Assumption reinsurance
• The permanent transfer of insurance liabilities
• Reinsurer takes over direct companies role
• Essentially the sale of a company or block of business
Intro to L&H Reinsurance | Seb Kleber
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Automatic vs. Facultative
Automatic reinsurance
• Business meets predetermined characteristics
• Reinsurer must accept reinsurance of those policies
• Terms predetermined in a treaty
Facultative reinsurance
• Voluntary (shopped) or policy doesn’t meet
automatic requirements (capacity)
• Terms negotiated separately for each policy
• Reinsurer underwrites the risk
Intro to L&H Reinsurance | Seb Kleber
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Excess vs. Quota Share

With an Excess / Quota Share treaty, the ceding company retains
a constant dollar amount / percentage of each policy up to a
maximum.
$2,000,000
Ceded
$1,000,000
R
e
t
a
i
n
e
d
C
e
d
e
d
Retained
EXCESS
Intro to L&H Reinsurance | Seb Kleber
QUOTA SHARE
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Retention example

Maximum client retention is $1,000,000 for both Excess and QS

Quota share is 40%
Excess
Share
Policy Size
Retention
Reinsurance
$500,000
$500,000
$0
$2,000,000 $1,000,000 $1,000,000
$500,000
$200,000
$300,000
$2,000,000
$800,000
$1,200,000
Quota Share
Intro to L&H Reinsurance | Seb Kleber
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Coinsurance vs. YRT
Coinsurance
YRT
Risk sharing Reinsurer shares in all
risks of the policy
Reinsurer shares in
mortality risk only
Reinsurance A proportionate share of
premium
the original policy
premium
Typically follows mortality
pattern (not policy
premiums)
Reinsurance Portion of claims and
payment
expense reimbursement
Portion of claims
Rate
guarantee
Guaranteed to the same
extent as original policy
Not typically guaranteed
Other
Ceding company gets a
credit for the reserves
held by the reinsurer
Intro to L&H Reinsurance | Seb Kleber
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Protection against adverse fluctuations

Insurers are concerned with both the number of claims and the
total amount of claims payments

Level of claims will vary greatly by product type, underwriting, and
market

An insurer will set its retention so that it will not risk insolvency as
a result of adverse claims experience
Intro to L&H Reinsurance | Seb Kleber
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Setting assumptions

Reinsurers can help clients determine the cost of the underlying
risk being covered
– Experience studies
– Protective value studies
– Research
– Alignment with underwriting practices
– Alignment with claims processes
Intro to L&H Reinsurance | Seb Kleber
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What is Reinsurance work like?
Life
Insurance

Reinsurance
Consulting
Day to day work experience
– Pricing
– Client Markets
– Valuation
– Experience Studies
Intro to L&H Reinsurance | Seb Kleber
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General advice

How do you know if actuarial science is the right fit?
– Attend company presentations
– Interview and ask questions
– Take an exam or two
– Job shadow
Intro to L&H Reinsurance | Seb Kleber
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Questions?
Intro to L&H Reinsurance | Seb Kleber
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Thank you