Evaluating the Effect of Reinsurance Contract Terms

In many reinsurance pricing situations it is not possible to determine a "correct" absolute price without making a large number of tenuous assumptions. Even so, in order to maximize a company’s profitability, it is important for the reinsurance actuary and underwriter to be able to choose the best contract terms among the achievable alternatives. Furthermore, being able to offer different but equivalent terms that better serve the needs of the cedant may help close an important deal. This paper measures the efficiency of contract terms by estimating the distribution of the present value of cash flows. To do this, the paper examines paid and incurred aggregate distributions as a function of time over the life of a contract. Sensitivity of the results to changes in the parameters of the underlying loss model is investigated. Reinsurance Research - Pricing/Contract Design; Profit Factor/Rate of Return/Risk; Claim Size Modeling/Loss Distribution