Life, Health, and Annuity Reinsurance PDF
Preview Life, Health, and Annuity Reinsurance
e s a PAN a arias = eit is AeSats eatey oe eB - ller, Jr., FSA Jonn E. Deni se Fagerberg T ller, FSA =~ > é > » ’ 2% . ae 2— .. m8 is Av Foy F5. neP arP SA SDectoe Sngartery Lanes“ FSAS : e b o H a a t ia = ) B % e LIFE, HEALTH & ANNUITY REINSURANCE Second Edition John E. Tiller, Jr., FSA Denise Fagerberg Tiller, FSA ACTEX Publications, Inc. Winsted, Connecticut Copyright © 1990, 1995 by ACTEX Publications, Inc. All rights reserved. No portion of this book may be reproduced in any form or by any means without the prior written permission of the copyright owner. Requests for permission should be addressed to ACTEX Publications P.O. Box 974 Winsted, CT 06098 Manufactured in the United States of America 10° 9°53 76 5 Ses Cover Design by MUF Library of eee Cataloging-in-Publication Data Tiller, John E. Life and health reinsurance/John E. Tiller, Denise E. Fagerberg. Pcie. Includes bibliographical references and index. ISBN 1-56698-183-2 1. Reinsurance--United States. 2. Insurance, Life--United States. 3. Insurance, Health--United States. I. Fagerberg, Denise E. II. Title. HG8083. T55 1990 368.3’0122--dc20 | 90-44071 CIP ISBN: 1-56698-183-2 Introduction. The reinsurance mechanism is critical to the smooth and efficient functioning of the primary life and health insurance market. Yet, for many years, the available insurance literature that focused on this specialized field was very sparse. In 1990, the first edition of this text was published, filling that gap in the literature by providing a compre- hensive survey of reinsurance concepts, products and practices. The second edition, like the original text, is comprehensive. It defines basic reinsurance terms, describes traditional reinsurance products, introduces contemporary uses of reinsurance, discusses treaty wording and administrative practices, and summarizes current practices in the legal, regulatory, and accounting environment. The book will be useful to students and experienced practitioners alike regarding historical and generally accepted practices within the life and health reinsurance industry. A basic introduction to life, health, and annuity reinsurance had been overdue for some time. As an individual who has enjoyed both a personal and professional involvement with the world of reinsurance for iv Introduction most of my business career, it is a pleasure to commend the authors on their original text, and to thank them for this timely update of their valuable work. William K. Tyler, FSA Lincoln National Life Insurance Company Preface This book was written to provide the life and health insurance industry with both basic and advanced information regarding the various aspects of reinsurance in one source. It documents the basic principles which the authors believe apply to life, health, and annuity reinsurance, as well as the widely used applications and practices. Some examples and applications of these principles regarding specific products or features are included to enhance the reader’s understanding. Some major historical developments are discussed to allow the reader to better understand how today’s practices and applications evolved, as well as to demonstrate the flexibility of reinsurance in real life. This book is intended to be a reference for both experts and novices involved in either ceding or assuming reinsurance. In analyzing a specific reinsurance need or agreement, the reader should be aware that a seemingly infinite number of legitimate variations of reinsurance are possible in practice. It is this diversity which creates the intellectual richness of the field. It is not possible for one book to contain all the knowledge which would be necessary to describe, analyze, or document every possible reinsurance transaction. To attempt this would be folly, as every product variation by every company would have to be addressed. Since new applications for reinsurance are still being introduced, an exhaustive list Vi Preface of legitimate uses would be impossible. However, the principles of reinsurance remain relatively constant. The intent of this book instead is to focus on those principles and unique aspects of reinsurance. For example, GAAP accounting is not explained, but rather the unique application of GAAP to various situations. The reader is assumed to have a basic knowledge of individual life, health, and annuity products and practices in the United States, as well as an understanding of basic statutory, GAAP, and tax accounting. The book takes the reader from the very basic definitions and uses of reinsurance to very advanced applications. While both authors are Fellows of the Society of Actuaries, an actuarial background is not necessary for understanding the concepts presented in the book except for the discussions of pricing and retention limit determination in Chapters Eight and Nine. The book is intended primarily for United States and Canadian audiences, but the basic principles apply internationally. Considerations specific to international reinsurance transactions are discussed in Chapter Eighteen. The book is arranged in four parts. Part One, consisting of Chapters One through Five, addresses the basic terminology of life, health, and annuity reinsurance and builds to working models of the more popular plans of reinsurance, including the coinsurance hybrids. It is recommended that all readers review these chapters, at least for vocabulary and general understanding. Chapter One introduces many of the basic reinsurance terms and presents a discussion of the uses of reinsurance, the various classifica- tions of reinsurance, the classifications of reinsurers, and the operational effects of reinsurance. Chapter Two is devoted to a detailed discussion of automatic reinsurance. The normal requirements for automatic reinsurance, the methods of determining the amounts of automatic reinsurance, and the methods of allocating automatic reinsurance are covered. Underwriting and facultative reinsurance considerations are presented in Chapter Three. The uses of facultative reinsurance are discussed as well as the considerations in developing a facultative program. Chapter Four discusses traditional reinsurance and addresses the operation, uses, and characteristics of coinsurance, modified coinsurance, and yearly renewable term reinsurance. A simplistic model is developed to illustrate the effects of each plan on, and differences in results for, both the ceding and the assuming companies.
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