Chapter 21 ERA 2.5 Measuring Value in Reinsurance - Venter, Gluck, Brehm

Value of reinsurance

1. Provides stability

   • Based on reinsurance premium and expected recoveries

     • Metrics 21.1 and 21.2

   • Amount of protection

     • Metrics 21.3

   • Net Premium - Net loss

     • Metrics 21.4, 21.5, 21.6 and 21.7

   • Distributions

     • Density and CDF

     • Space needle diagram

     • Cost benefit diagram

     • Combined ratio is bad

   • \(\star\) Efficient frontier

2. Frees up capital

   • \(\star\) Cost of capital reduction metrics 21.8 and 21.9

   • \(\star\) Capital can be based on theoretical or practical model

   • Accumulation risk: as-if reserve 21.10

   • Capital consumed and the equation (21.1)

3. Adds to the value of the firm

   • Difficult to do but some recent study results