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Random Thoughts On Loss Portfolio Transfers

Random Thoughts On Loss Portfolio Transfers. Bryan Ware CAS Fall Meeting - 2001. Loss Portfolio Transfers. Reasons for Buying Some Contract Features Modeling Considerations. Loss Portfolio Transfers. Reasons for Buying Exiting a Line or Segment of Business

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Random Thoughts On Loss Portfolio Transfers

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  1. Random ThoughtsOnLoss Portfolio Transfers Bryan Ware CAS Fall Meeting - 2001

  2. Loss Portfolio Transfers • Reasons for Buying • Some Contract Features • Modeling Considerations

  3. Loss Portfolio Transfers • Reasons for Buying • Exiting a Line or Segment of Business • Protecting the Runoff of the Book • Risk Transfer & Reserve Adequacy

  4. Loss Portfolio Transfers • Reasons for Buying • Realize Discount • Use of Offshore Paper • Fund other Activities (segregated surplus generation) • Facilitate Merger or Acquisition

  5. Loss Portfolio Transfers • Contract Features • Full Loss Portfolio Transfer or Adverse Development Cover • Maximum Economic Loss • Contractually Agreed Net Present Value Amount of Maximum Loss • Calculate by Discounting Actual Cash Flows

  6. Loss Portfolio Transfers • Contract Features • Commutation • Mandatory vs. Optional • Maintenance Fees • Start after pre-determined number of years • Hard to determine needed amount • Encourages Commutation

  7. Loss Portfolio Transfers • Contract Features • Use of Sublimits • Security • Funds Transferred or Funds Withheld • Letter of Credit or Trust

  8. Loss Portfolio Transfers • Modeling Considerations • Aggregate Distribution • For Per-Occurrence Excess coverage, use Fast Fourier Transform with variety of curves • For Ground-up, use Lognormal • Reasonability checks – is this the right curve

  9. Loss Portfolio Transfers • Modeling Considerations • Expenses • High Up-front Cost • Varies with Outcome • Not Proportionally

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