How to win the RSP game?

s7duongs7duong
in Dutil.FA

Is there a diagram/flow chart somewhere that details what are the transactions that take place for the insurer to make profit from RSP?

  1. insurer cedes premium - is this based insurer's market share of exposures? If the insurer doesn't cede anything, do they still need to contribute money to the pool? Are insurers encouraged to cede as much as possible pool to minimize participation ratio?
  2. claims - does insurer pay for these claims, or does RSP collect funds from all insurers to pay for them?
  3. ceded losses exceeds ceded premium - is this the norm? Ceded risks are unprofitable. How does the shortfall get made up?
  4. profit when ceded loss ratio is higher than RSP loss ratio. Why does this mean insurer profits? Does reimbursement occur at regular intervals?

Comments

  • Staff-T1Staff-T1
    1. This is based on the insurer's non-ceded exposures. So yes, even if they do not cede they will still need to share in the pool's results. Yes, you should cede more.
    2. Insurer pays for them. How it works is as follows:
    • The insurer that issued the policy and transferred it to the RSP pays and handles claims on that policy.
    • After paying the claim, the insurer reports claims costs to the (FA). The FA then aggregates all reported claims and other related expenses from all participating insurers.
    • Total costs (including claims, premiums, and expenses) are shared among all participating insurers based on their participation rate. The FA collects funds from insurers with a lower share of the pool’s costs and redistributes funds to insurers with higher claims expenses.
    1. By nature, it is expected to be unprofitable as you are ceding the worst guys on your book. The excess is shared amongst the pool members
    2. Profit here because if the pool LR is 150%, you are on the hook for that. However, you have put in risks with a LR of 170% so the spread of 20% is what you make (The difference between what you ceded and what you received) I believe results are allocated monthly.
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