IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/6299.html
   My bibliography  Save this paper

Insurance risk transfer and categorization of reinsurance contracts

Author

Listed:
  • Gurenko, Eugene N.
  • Itigin, Alexander
  • Wiechert, Renate

Abstract

Despite the existence of numerous quantitative approaches to the categorization of financial reinsurance contracts, often insurance regulators may find the practical implementation of the task to be technically challenging. This research paper develops a simple, affordable, and robust regulatory method that can help insurance regulators to categorize financial reinsurance contracts as reinsurance or financial instruments. By reviewing real examples of different categorization methods, this paper explains how the proposed method standardizes such categorization. It also summarizes the existing pertinent literature on the subject with the view to helping insurance regulators to first apply some simple indicators to flag the main issues with financial reinsurance contracts that may need further reviews. Having identified the suspicious reinsurance contracts, supervisors may consider several solutions provided by the authors and, in some cases, requiring further quantitative testing of risk transfer contracts for categorization purposes, supervisors may also consider adopting the Standardized Expected Reinsurer's Deficit approach to contract testing presented in this paper. The approach advocates the use of a simple standardized stochastic method that would allow market participants and regulators to perform robust quantitative tests quickly and at an affordable cost. Besides addressing the obvious drawbacks of the"10-10"test, the proposed alternative method allows a great reduction in the technical challenges posed to the users of the Expected Reinsurer's Deficit approach based on full stochastic models with only a minimum loss of predictive accuracy.

Suggested Citation

  • Gurenko, Eugene N. & Itigin, Alexander & Wiechert, Renate, 2012. "Insurance risk transfer and categorization of reinsurance contracts," Policy Research Working Paper Series 6299, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6299
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/12/27/000158349_20121227231325/Rendered/PDF/wps6299.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Wang, Shaun S., 2002. "A Universal Framework for Pricing Financial and Insurance Risks," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 32(02), pages 213-234, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Insurance&Risk Mitigation; Debt Markets; Hazard Risk Management; Insurance Law; Labor Policies;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6299. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.