Blog 61: Reinsurance Structures by Xavier Lo, FIA, FRM, MBA

Firstly, thanks for all of you who reached out to me with questions. I personally prefer to reply through Instagram so feel free to reach out here! Today’s topic will be something that I should have gone through a while ago. Lets look quickly at the different types of basic Reinsurance Structures [再保險種類].

Reinsurance [再保險] is a way insurance companies pass off the risks to other insurance companies. We split them into two types: proportional [比例]and non-proportional [不成比] reinsurance. Proportional reinsurance just means that we share a defined ratio of the benefits and drawbacks with another company. For example, I give 30% of all the premium [保費] that I received to the reinsurer. In return, the reinsurer also pays me 30% of all the claims [賠償金] that I need to pay out to customers. Non-proportional reinsurance usually just covers losses above a certain amount. Say I was not comfortable with customers claiming for losses more than $1 million, I would just pay for the first 1 million of every loss and my reinsurer will pay the rest.

Another broad split of reinsurance is loss-occurring [意外發生] and risk-attaching [風險生效] reinsurance. Loss-occurring reinsurance is simple: if a loss comes in, and the reinsurance contract is active at the moment the loss happened, then the reinsurer makes a payment. Risk-attaching reinsurance is a bit more complex. When a loss happens, we have to first see if the reinsurance contract was actively covering the underlying insurance contract. This subtle distinction happens because the start dates [合約生效日期] of insurance and reinsurance contracts don’t necessarily match up. The above was quite confusing to me at first too – but draw up a timeline with different scenarios, then it’ll become a bit clearer.

Basically, you can think of reinsurance being split into 4 (2X2) categories as mentioned above. However, there are different details with each contract. As with all these technical details, please just DM me so we can discuss more!

Qualified fellow actuary (in UK and Hong Kong), Financial Risk Manager, and MBA graduate (listed on the Dean's List) with a passion for insurance, data science, and analytics. Experienced in a broad range of insurance roles (pricing, capital modelling, reserving, ERM), along with a touch of knowledge in banking. Member of the General Insurance Committee (2021), Actuarial Innovation Committee (2019 - 2021) in ASHK.

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