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  #1  
Old 08-09-2005, 05:16 PM
cherrera cherrera is offline
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Default Loss portfolio transfer

What is a loss portfolio transfer?
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Old 08-09-2005, 05:56 PM
Mobile Actuary Mobile Actuary is offline
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A loss portfolio transfer is the transferring of a group of insurance liabilities from one insurance company to another, along with a mutually agreed amount of assets.

At one time, LPT's were sometimes used to evade the prohibition some regulators have on discounting property and casualty reserves. The selling company would transfer a group of liabilities (booked at 100% of nominal value) to a second company, along with assets worth less than 100% of nominal value. The selling company got a surplus boost.

The buying company booked the reserves at something like the purchase price, in effect discounting them to present value.

Various requirements and disclosures have been added in the annual statement and actuarial opinion to allow the regulators to crack down on abuses.
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Old 08-09-2005, 07:26 PM
johnny storm johnny storm is offline
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That's accurate, MA, but not the only reason (it sort of sounds like you're saying that's the only way they were used), you can also do it to transfer liabilities off your books to get a better rating. For example, if you have $100 million in asbestos liabs on your books, and they are risky enough that you get a lower rating, you can sell them to Swiss Re - you bolster your rating so that you can sell more business, while it's not big enough to hurt Swiss Re much.

There's other reasons, but basically, you have liabilities associated with future payments and you pay somebody to take them away.
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Old 08-09-2005, 07:27 PM
johnny storm johnny storm is offline
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Quote:
Originally Posted by Mobile Actuary
The buying company booked the reserves at something like the purchase price, in effect discounting them to present value.
I thought the whole point was that they were pension-type payments, and it was P/C companies selling them to L/H companies, who were explicitly allowed to discount? I could be wrong.
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Old 08-09-2005, 08:31 PM
cherrera cherrera is offline
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thanks for all the replies..... I am working on a presentation for a rating agency and they are asking about that...
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Old 08-11-2005, 11:34 PM
Arlie_Proctor Arlie_Proctor is offline
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You will want to review FAS 60 and its successor FAS 116 in preparing your presentation. LPT's can take many forms, according to the provisions of the contract (i.e. some are discounted and some are not). The accounting treatment afforded the LPT depends on its structure.
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Old 08-12-2005, 12:05 PM
cherrera cherrera is offline
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thanks for the info guys..
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Old 03-28-2017, 10:12 AM
youngorchard youngorchard is offline
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I know this may be a dumb question, but is it possible to transfer unearned premium reserves (UPR) through an LPT?

Based on my limited understanding of the subject, an LPT is a retroactive reinsurance contract that allows the insurer to cede loss obligations for claims incurred. UPR does not fit this definition and I am wondering if it is just not possible to transfer obligations related to UPR.

Thanks in advance.
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Old 03-28-2017, 10:37 AM
Westley Westley is offline
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Quote:
Originally Posted by youngorchard View Post
it is just not possible to transfer obligations related to UPR.
This is not the case.

However, as you point out, the definitions don't really match up, so you'd probably call it something else - you're not transferring losses, you're transferring unearned premium. Not sure it matters what you call it, and if somebody called it an LPT, I probably wouldn't correct then so long as I knew that everybody understood what was happening and it wasn't creating any confusion.

To the question of transferring UPR in general, it's common to have a reinsurance contract go into effect on January 1 for all policies written after January 1; and then you have to decide whether to include the UPR - sometimes you do, sometimes not. So, it's def possible to transfer UPR obligations.

More generally, you can transfer almost anything, you just need a willing buyer, a willing seller, and approving regulators.
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Old 03-28-2017, 12:01 PM
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Quote:
Originally Posted by johnny storm View Post
I thought the whole point was that they were pension-type payments, and it was P/C companies selling them to L/H companies, who were explicitly allowed to discount? I could be wrong.
LPTs are broader than just this.
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