Risk limiting features - Experience Based Renewals
Could you explain why "if reinsurance premium rates are guaranteed to recover any portion of prior year losses, then risk transfer is limited"?
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Could you explain why "if reinsurance premium rates are guaranteed to recover any portion of prior year losses, then risk transfer is limited"?
Comments
When the reinsurer is able to claw back prior year losses, then there is less "protection" for the insurer. The whole point of reinsurance is to protect against tail losses - If the reinsurer is able to recover a portion of prior year losses incurred from the insurer, then you are less protected from tail events as your total payout given an event will now be smaller