Page 74 - Reinsurance Management IC85

Reinsurance Management

b. The results of a portfolio will be affected by
the number and average size of losses.
Fluctuations in the expected claims experience
will get greatly reduced if there are a large
number of homogenous risks in a portfolio. As
a percentage of the annual premium income,
retention is known to vary between 0.5% to 5%.

c. Each form of reinsurance affects the net retention.
Quota share reduces cost of claims but retains
balance of portfolio. Surplus treaty will reduce loss
costs on larger risks and limit the loss on any one
risk and provides better balance for the portfolio.
Non-proportional reinsurance will affect insurer's
retained loss pattern. Thus the choice of reinsurance
protection will influence the retention level.

d. Retention is influenced by the company's long-
term objectives. New companies have to strike a
balance between finding a place in the market
and the extent to which reinsurance can be
arranged. For large established companies, the
emphasis will be on reserves and profitability

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