Finite Reinsurance

1
Finite Reinsurance

• The New Choice in Global Reinsurance

2
Buyers Perspective

• Earnings Acceleration/Smoothing
• Capital/Surplus Management
• Accounting Arbitrage
• Balance Sheet Engineering/Optimization
• MA
• Tax Deferral

3
Sellers Perspective

• Motivation behind transaction is not primarily
  Risk Transfer
• Defined maximum limit
• Good balance between upside and downside

4
Finite Deal Characteristics

• Highly Structured
• Defined Limit
• Additional premiums to offset adverse experience
• Funds Withheld or Funds Transferred
• Profit Sharing
• Multi-Year
• Optionality
• Explicit recognition of Investment Income

5
Finite Reinsurance Products

• LPT/Adverse Development Covers
• Prospective Aggregate Excess
• Multi-Year Funding
• Finite Quota Share

6
LPT/Adverse Development

• Exit a line of business
• MA
• Statutory Accounting benefit
• Limiting adverse impact of run-off can increase
  value in the the eyes of rating agencies,
  regulators investors

7
Prospective Aggregate Excess

• Can attach at, above or below plan
• Allows company to access discount in reserves
  (acceleration of income)
• Smooth results
• CAT protection
• Additional premiums for additional limit used

8
Multi-year/Spread Loss

• Pre and/or Post Funding of an event (often CAT)
• Overall aggregate limit sub-limits by accident
  year
• Experience account for premiums and losses
• Premiums after first year typically increase
  (especially if EAB is negative)
• Often designed to be cancelled after first year
  (i.e. post loss funding)

9
Finite Quota Share

• Increase/enhance capacity
• Lower cost than traditional quota share
  arrangements
• Capped limit

10
Transaction Example Aggregate XOL

• Coverage Summary
• Plan Loss Ratio 70
• Attachment Point 50
• Limit 35 (i.e. up to an 85 L/R)
• Premium 15
• EAB Credit Rate 7
• Balance Sheet Impact (with 40 U/W Expenses)
• Combined Ratio before coverage 110
• Combined Ratio after coverage 106

11
Aggregate XOL Example
Aggregate Losses
85
Area of
70
Coverage
50