(2015 Spring Q18 c.ii.) Reinsurance coverage as a financial resource for EQ exposure

daviddavid
edited January 10 in OSFI.Eqk

Hi Graham,

Could you please explain this one restriction of reinsurance coverage as a financial resource "In the case of whole account reinsurance insurers may need to use a full stochastic model". I don't really understand the term whole account reinsurance, and how a full stochastic model comes into play?

Thanks!

Comments

  • Staff-T1Staff-T1

    Whole account reinsurance is basically reinsurance on your entire class of risks, for example an XOL coverage on your entire book vs a property per risk for each individual risk. To estimate the losses in the tail of the distribution (which is where earthquake risk is greatest) you would need a fully stochastic model to quantify that risk.

  • daviddavid

    Thank you for the explanation. Edited the title to correctly reference the exam question#.

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