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  #1  
Old 01-26-2018, 09:39 AM
fastcount fastcount is offline
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Default pricing in an insurance company vs at a reinsurance company

Here's my understanding of the difference.

Pricing at an insurance company deals with product features, optimizing them in order to make the competitive and profitable.

Pricing at a reinsurance company doesn't look at individual insurance product features, you simply look at cash flows and try to determine the price to charge the insurer. (To be honest, this is just what I think, I honestly have no idea). I'm assuming this is how it works for YRT reinsurance, I have no idea how the pricing process works for the other forms of reinsurance, coins, modco, etc.

Can anyone provide some insight into insurance or reinsurance or both?
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Old 01-26-2018, 09:43 AM
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At insurance I don't think I'd say we're so focused on the product features as spending a lot of time estimating the premium/loss trends and modeled/non-modeled CAT loads by various breakouts. The product itself is pretty set in stone for the most part.
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Old 01-26-2018, 09:58 AM
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On the contrary, in my case, our department plays a significant role in product development. I'm sure this varies by company. (basic P&C insurer)
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Old 01-26-2018, 10:54 AM
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On the life side, both direct and reinsurance pricing involves projecting cash flows and setting a price that meets profit goals. Certainly the direct writer has more flexibility in negotiating product features. Competition and sales force input are limiting factors.

For YRT, the reinsurer does have some flexibility in setting the pattern of annual premiums, but it needs to be reasonably related to the underlying mortality. For either coinsurance or modco, the direct company sets the features including premium pattern, but the projection of cash flows works exactly the same for either direct or reinsurance.

This is based on my experience as a former actuary at both direct and reinsurance companies. I would add that YRT and Modco are only used in life reinsurance, as far as I can tell.
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Old 01-26-2018, 11:32 AM
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Are you interested in P&C, life, or health? I would think that pricing, both in insurance and reinsurance, would vary greatly depending on which field you're curious about (at least for P&C/health vs. life). I don't really know, though.
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Old 01-26-2018, 12:38 PM
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I'm interested primarily in Life
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Old 01-26-2018, 12:43 PM
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I'm interested primarily in Life
I'm sorry
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Old 01-29-2018, 04:05 PM
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Originally Posted by JMO View Post
For YRT, the reinsurer does have some flexibility in setting the pattern of annual premiums, but it needs to be reasonably related to the underlying mortality. For either coinsurance or modco, the direct company sets the features including premium pattern, but the projection of cash flows works exactly the same for either direct or reinsurance.
Does that mean that the reinsurer's expected mortality assumption will always be more aggressive?

Because if a direct insurer can't pass on the mortality risk to reinsurer for a lower cost of mortality, then what is the point of reinsurance other than capital relief or risk transfer? If you're reinsuring at a higher cost of mortality, wouldn't you be losing money?

I realize these are noob questions, but I have to start somewhere.
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Old 01-29-2018, 06:17 PM
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Quote:
Originally Posted by fastcount View Post
Does that mean that the reinsurer's expected mortality assumption will always be more aggressive?
Nope.

Quote:
Because if a direct insurer can't pass on the mortality risk to reinsurer for a lower cost of mortality, then what is the point of reinsurance other than capital relief or risk transfer? If you're reinsuring at a higher cost of mortality, wouldn't you be losing money?
Yes, there may be some cost to doing YRT reinsurance. But every company, including both direct and reinsurance, has a limit on the amount of risk they are willing to take on any given life. It's called "retention." Under the usual reinsurance treaty, the reinsurer will cover any death claim in excess of the ceding company's retention. If the amount is huge enough, the reinsurer will in turn, retrocede its excess.
To make a deal, both parties will want the YRT premium to be reasonably related to mortality costs, both overall and year by year. But yes, indeed, the reinsurer will price for a small profit over its assumed cost of mortality, and the ceding company pays for this, in order to limit the variance of claims.
I guess this is a form of risk transfer.

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