Casualty Actuarial Casualty Actuarial Society Society Reinsurance Seminar Reinsurance Seminar June 3, 2002 June 3, 2002 Lina S. Cheung, F.S.A, M.A.A.A. 1 Pennsylvania Plaza, 38 1 Pennsylvania Plaza, 38 th th Floor Floor New York, NY, USA New York, NY, USA (212) 279-7166 (212) 279-7166 [email protected][email protected]
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Casualty Actuarial Society Reinsurance Seminar June 3, 2002 Lina S. Cheung, F.S.A, M.A.A.A. 1 Pennsylvania Plaza, 38 th Floor New York, NY, USA (212)
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Casualty Actuarial Society Casualty Actuarial Society Reinsurance SeminarReinsurance Seminar
June 3, 2002June 3, 2002Lina S. Cheung, F.S.A, M.A.A.A.1 Pennsylvania Plaza, 381 Pennsylvania Plaza, 38thth Floor FloorNew York, NY, USANew York, NY, USA(212) 279-7166(212) [email protected]@milliman.com
Overview– Medical reinsurance products– History and development
Medical Reinsurance Liability Explosion– What the risks are?– Food chain risk– Contractual risk
Risk Management
June 3, 2002 Milliman USA
Medical Reinsurance ProductsMedical Reinsurance Products
Employer Stop Loss
The insured is an employer who funds its first dollar employee health expenses up to a certain risk tolerance.
Common Forms of coverage:
Specific Stop Loss
Aggregate Stop Loss
June 3, 2002 Milliman USA
Medical Reinsurance ProductsMedical Reinsurance Products
Provider Stop Loss
The insured is the physician hospital organization (PHO), hospital or physician group which assumes a capitation risk from a health plan or a major employer.
Common form of coverage
Specific Stop Loss
June 3, 2002 Milliman USA
Medical Reinsurance ProductsMedical Reinsurance Products
Portfolio/HMO Reinsurance
The insured is an insurance carrier or a health plan. The scope of coverage could be a product, a block of business or the entire portfolio.
Common forms of coverageSpecific Stop Loss1st Dollar Quote Share
June 3, 2002 Milliman USA
Medical Reinsurance ProductsMedical Reinsurance Products
Specialty Carve-out Reinsurance
The insured is often a health plan or a major employer carving a specific risk from their portfolio.
Common form of coverage:
1st dollar 100% quota share
June 3, 2002 Milliman USA
Medical Reinsurance ProductsMedical Reinsurance Products
Others
– Medical management performance– Utilization stop loss for new drug
Most reinsurance contracts define risk attaching and paid periods.
Fully insured contracts – guaranteed issue and guaranteed renewable– 5 year exit rule for fronting carriers– Some reinsurance contracts terminate only there is
Example Example Safety Co wrote $100 million in employer stop loss $100 million
paid $12 million broker commission - 12 million
$13 million in MGU fee - 13 million
charged $5 million for carrier fee - 5 million
Net $ 70 million
Safety Co has a 50% quote share with Employee Re
Employee Re received $35 million in net premium $ 35 million
paid $1 million in reinsurance brokerage - 1 million
paid $1 million in reinsurance MGU fee - 1 million
charged $1 million for its expenses - 1 million
Net $ 32 million
Employee Re has 50% quota share with Friendsamerica
Friendsamerica received $16 million for 25% of the original risk, its internal expenses and retro broker expense.
June 3, 2002 Milliman USA
Partner RiskPartner Risk
You rely on
the retail broker/TPA to provide good risk representation to the retail MGU
the MGU to write profitable business, not volume the MGU/Carrier to manage premium eligibility and claims the MGU/Carrier to protect you with sound contracts The MGU/Carrier to protect you from litigation risks with
sound management practices the TPA/MGU/Carrier to provide timely reporting so you
know the facts
The longer the food chain, the greater the risk
June 3, 2002 Milliman USA
Information RiskInformation Risk
Liability Explosion Risk #4
You have no fact-based information on exposure and profitability, TODAY.
June 3, 2002 Milliman USA
Information RiskInformation RiskRisky responses to information need
We are building an information system to address all your data requirements. We are in the first twelve months of the treaty. The experience is not credible. Let’s
assume break-even. Our contracted underwriter told us that the high premium volume was due to high
premium rate increases. Although we only have six month of accounting paid data, I think we will meet our
profit target. Our MGU is very convincing. He sounds like he knows what he’s doing. Our MGU is giving us monthly data dump. We don’t know what to do with.
June 3, 2002 Milliman USA
Underwriting CycleUnderwriting Cycle
Too Late
Warning Signal
Down Cycle
June 3, 2002 Milliman USA
Risk ManagementRisk Management
June 3, 2002 Milliman USA
Risk ManagementRisk Management
Know the underlying riskContractually define your
reinsurance risk and limit your risk exposure
Don’t cross the line to insuranceAlign risk and rewards with your
partnersActively manage your portfolio
June 3, 2002 Milliman USA
Active Portfolio ManagementActive Portfolio Management
ActionableInformation
ManagementActions
June 3, 2002 Milliman USA
Portfolio Information FlowPortfolio Information Flow