Reinsurance Programs Research Articles

Comprehensive flood economic losses: review of the potential damage and implementation of an agricultural impact model

With an annual loss averaging 580 M€ between 1990 and 2014, floods are the main natural catastrophe (Nat Cat) risk for the French Nat Cat compensation scheme. As part of its role in this scheme, the Caisse Centrale de Reassurance (CCR) offers state guaranteed reinsurance programs and has been modelling the risk of flooding since 2003. This model is based on the traditional valuation approach of direct tangible costs which pairs a physical model with exposure through damage curves. CCR wishes now to widen the studied damage scope to insured and noninsured economic costs and has been collaborating with the SAF research laboratory from the Institute of Financial and Insurance Sciences (ISFA) since 2014. CCR’s model has been used to estimate the insured direct damage to residential and non-residential properties and it is now being developed to include damage to vehicles, agriculture and network infrastructures. Research is also being carried out to take into account business interruptions and indirect losses using an Input-Output model. This article describes the undergoing work on model development to estimate the damage to agriculture.

Insurance-Linked Securities and StructuredSettlements

Influence from direct capital markets’ participation in reinsurance programs, coupled with catastrophic insured losses well below historical averages in 2013, has put significant pressure on global catastrophic reinsurance pricing. There continues to be an increasing use and acceptance of indemnity-based triggers as the spread differential between that and other parametric and/or index-based triggers diminishes. Bespoke parametric structures for non-peak risks are becoming more common. The insurance-linked securities market is expanding in terms of both breadth of products and geography. Mortality risk remains a nascent market, but the extreme mortality segment is growing. Performance of the structured settlement asset-backed securities market has been stable, reflecting the stable performance of the life insurers whose annuities back the securitized pools. Despite isolated conduct episodes, the market has worked well. The court approval process has been relatively smooth. Moody’s assigns a rating of A3 or higher to 85% of the carriers whose annuity payments are the primary source of repayments under structured settlements. <b>TOPICS:</b>Asset-backed securities (ABS), legal and regulatory issues for structured finance

The Impact of Health Care Reinsurance on Different Cohorts

Abstract: This paper examines issues with the use of reinsurance programs to expand health insurance coverage to younger adults, older adults, and households that have a member with a pre-existing condition. Reinsurance programs could reduce insurance company losses and risk in the small-group and non-group markets. However, even with reinsurance specific cohorts will still have a difficult time obtaining affordable health insurance. Reinsurance could be part of a health care reform package of the multi-payer insurance system but an effective reform would have to include incentives or mandates spurring coverage by younger healthier adults and guaranteeing affordable access regardless of age or health status.

Terrorism and the Stock Market

This paper examines the stock price impact of terrorist attacks. Using an official list of terrorism-related incidents compiled by the Counterterrorism Office of the U.S. Department of State, we identify 75 attacks between 1995 and 2002 in which publicly traded firms are targets. An event-study analysis around the day of the attacks uncovers evidence of a statistically significant negative stock price reaction of -0.83%, which corresponds to an average loss per firm per attack of $401 million in firm market capitalization. A cross sectional analysis of the abnormal returns indicates that the impact of terrorist attacks differs according to the home country of the target firm and the country in which the incident occurred. Attacks in countries that are wealthier and more democratic are associated with larger negative share price reactions. Most interestingly, we find that human capital losses, such as kidnappings of company executives, are associated with larger negative stock price reactions than physical losses, such as bombings of facilities or buildings. We discuss the implications of these findings for existing research on terrorism and for current policy debates regarding terrorism re-insurance programs.

Optimal reinsurance programs: An optimal combination of several reinsurance protections on a heterogeneous insurance portfolio

In most practical cases, the reinsurance protection of an insurance portfolio is not limited to one reinsurance type such as quota share, surplus, excess of loss or stop loss, but is organised through a combination of several methods of protection, a so-called reinsurance program. In this paper, we will analyse optimal reinsurance programs for a given portfolio based on the “mean–variance” optimisation criterion. Special attention is given to a description of a “surplus reinsurance” in combination with an “excess of loss per risk protection” for a heterogeneous insurance portfolio. We derive the equations one needs to solve for finding the optimal solution for the following combinations: excess of loss after surplus, excess of loss after quota share, stop loss after quota share, quota share after stop loss, quota share after excess of loss, quota share before surplus and quota share after surplus. It turns out that the application order of the reinsurance protections has its importance.

Systemic risk in U.S. crop reinsurance programs

This study develops a method to estimate the probability density function of the Federal Risk Management Agency’s (RMA’s) net income from reinsuring crop insurance for corn, wheat, and soybeans. When calibrated using 1997 data, results from the advocated method show that in 1997 there was a 5% probability RMA would have had to reimburse at least $1 billion to insurance companies, and the fair value of RMA’s insurance services to insurance firms in 1997 was $78.7 million.

Crop Insurance under Catastrophic Risk

AbstractWe develop a new insurance model that shows how catastrophic risk affects the nature and existence of a crop insurance market equilibrium. A reservation preference level is used to characterize long‐run equilibrium when catastrophic risk makes insurance companies risk responsive. Catastrophic risk is shown to increase premiums, reduce farmer coverage levels and, under some conditions, lead to a complete breakdown of the crop insurance market. Reinsurance can help facilitate an equilibrium and/or increase participation, particularly if the reinsurance is subsidized. The analysis has important implications for the design and management of crop insurance and reinsurance programs.

093039 (M52) Comparing reinsurance programs - A practical actuary's system : Daino R.A., Thayer C.A.,Casualty Actuarial Society, 1997, pp. 141–177

093039 (M52) Comparing reinsurance programs - A practical actuary's system : Daino R.A., Thayer C.A.,Casualty Actuarial Society, 1997, pp. 141–177