Spring 2017 18a)
in Odo.FinReg
How do we know this question is talking about reinsurer commuting to the insurer?
Also, if it was insurer commuting to the reinsurer, then would the advantages simply just be reversed? (ex. the advantages/disadvantages would apply the same to both reinsurer and insurer depending on which party is commuting)
Comments
I am unsure what you mean here. I think the question is pretty clear in terms of who is commuting to who...
If the reinsurer is commuting a claim -> Reinsurer gives back the claim
If the insurer is commuting a claim -> Insurer gives the claim away
Yes, but properly phrased of course
"Briefly describe two reasons for a reinsurer to commute a claim and two reasons for an insurer to commute a claim"
So in my head, I went to list the reasons why a reinsurer would give back the claim, and also the reasons why an insurer would give the claim away both of which would have the same advantages. However, the solution assumes reinsurer is giving back the claim and insurer receives the commuted value.
The examiners report also noted the opposite interpretation is wrong (insurer gives away claim and reinsurer receives commuted value). Which is why I am wondering why it is obvious the reinsurer is commuting the claim and the insurer is receiving the commuted value.
So I went into the source and this is what it says:
So I guess based on the source, the sample answers are correct.
A reinsurer commuting a claim gives the claim back to the insurer
An insurer commuting a claim takes the claim back from the reinsurer.
My original answer is not correct!
So no wonder who is proposing to commute, it is reliefing the Reinsurer's Ceded Clam Provision (i.e. in the end Reinsure is free of Liab. by giving out exact cash payment to the insurer).
It is removing the Reinsurer's assumed claim provision. But yes, the reinsurer is free of liability after