How to Use DFA in Reinsurance Decisions
 Reinsurance brokers “have been speaking prose”
for decades!
- Comparing alternative structures
- Limit/retention analyses
- Evaluating loss-sensitive features
The analysis compares possible strategies by
comparing a measure of results under different loss scenarios.
An ancient example:
- Small book of business,
- Key measure is profit-center underwriting
gain
 |
Alternative
Strategies |
Loss Scenarios |
No Claims |
One Partial |
|
|
| 1. Keep Q/S |
$100 |
$50 |
$0 |
| 2. Buy XOL |
$200 |
($50) |
$100 |
|
| Improvement
= (2) – (1) |
$100 |
($100) |
$100 |
|
Comparing Excess and Quota Share Structures
Evaluating Loss Sensitive Features
Difficulties of Modeling the Kind of Losses Reinsurance Covers
Separate loss processes for individual lives, versus single
employer catastrophe, versus widespread disasters
No probabilistic Cat models for WC
Tying together WC and property loss occurrences
Carve-outs, MAOLs, OD limitations, WC Coverage A
versus EL
Commutations (and re-assumption of IBNR)
And that’s just the loss part of the model!!
|
