Keywords
Alternative Risks Transfer
Underwriting Risk
Timing Risk
Aggregate Limit
How to Cite
Abstract
Within the wide range of the existing alternative risk transfer tools, the last five year have witnessed an outstanding expansion of the so-called finite risk reinsurance treaties (finite risk reinsurance), designed by reinsurers on an insuring coverage individual basis to meet the specific needs of each ceding company. Finite risk reinsurance combines both actuarial and financial techniques, allowing insurers a higher retention of assumed risks in exchange for a stabilization of their technical results over a usually annual time period.
The main feature of this kind of coverage is the consideration of the financial aspect of time value of money in the premium calculation, with either a predetermined or reduced transfer of risk of the insured portfolio for the reinsurer. As far as their objectives is concerned, they may be of two kinds: actuarial objectives, consisting of an optimization of traditional reinsurance structures, as well as a reduction of the impact of the occurrence of events of low and high intensity on the insurers balance, and also financial objectives, like the optimization of the strategies of investment or the consecution of better balance ratios and credit qualification of the reinsurers.
Because all of that, this work carries out a study of this alternative form of reinsurance, particularly focusing on its definition, main features, performance, advantages and disadvantages with respect to traditional reinsurance and of its uses and abuses, main types of coverage with their corresponding examples of application, as well as on an introduction to the financial reinsurance premium actuarial calculation
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