Non-Proportional Reinsurance

Extract

The subject of reinsurance has received relatively little treatment in our actuarial literature and indeed the definitive paper on the subject was written by G. T. Foster in 1945. This paper is still the recommended reading for the subject in the Final Examination. Non-proportional reinsurance finds its usual place in the fire and accident departments but for reasons which I hope will become apparent later it is much less common in life assurance. It seems to me that the reason for this is that it is a form of cover unattractive to both parties since it is essentially short term, whereas life assurance offices are concerned with long term liabilities. Nevertheless, since some actuaries may be unfamiliar with the subject chosen for this meeting, I felt that the ground might be better prepared if the subject of life assurance were treated first.

Definitions

It is usual to start with a definition and in this case it is easier to define what is meant by proportional reinsurance, since this is the type of reinsurance most commonly encountered by actuaries.

It may be stated as follows: When a claim arises, the shares of the reinsurer and ceding company are paid in proportions which were fixed in advance. This is a simple and rather obvious statement, and for this very reason it is often overlooked.