Identifying considerations for MfAD(re)
In identifying the considerations for MfAD(re), one of the items listed is ceded loss ratio. I am wondering what sort of info we are looking for in this metric. Is it volatility of the ceded loss ratio? Meaning, if it is very volatile then there is more uncertainty regarding future recoverable losses, which directly affects the best estimate. OR are we looking for something else?
Ceded loss ratio is listed as one of the considerations, my question is...what exactly are we looking for in this number to determine the margin...is it volatility of this ceded loss ratio? Higher volatility -> higher estimate uncertainty -> higher margin. correct?
Thank you
Comments
As per the paper (http://www.cia-ica.ca/docs/default-source/2009/209138e.pdf, table 5.2), it is more so a higher ceded loss ratio. Here's how I picture it: if the insurer's ceded loss ratio is high and he is unable to recover from the reinsurer in the future, then he (the insurer) will have to pay higher dollars of claims himself (per dollar of premium).
Let me know if this makes sense.
Makes sense thank you