lev-os Managing Reinsurance Programs
When To Use
- Analyzing an existing reinsurance program for renewal strategy or restructuring
- Optimizing cession structures across quota share, surplus, excess-of-loss, and catastrophe layers
- Evaluating reinsurer counterparty credit quality and concentration risk
- Pricing treaty or facultative placements and comparing broker submissions
- Assessing net retained risk positions after cessions and retrocessions
- Preparing reinsurance program summaries for board, rating agency, or regulatory review
Inputs To Gather
- Current treaty/facultative schedule: All active reinsurance contracts with attachment points, limits, rates, and reinstatement provisions
- Loss history: At least 5–10 years of gross and net incurred/paid loss triangles by line of business
- Exposure data: Premium volume, policy counts, PMLs (probable maximum losses), and aggregate exposure by geography/peril
- Counterparty information: Reinsurer names, AM Best / S&P / Fitch ratings, collateral arrangements, and outstanding recoverables
- Pricing indications: Broker market submissions, rate-on-line quotes, and sliding-scale commission terms
- Regulatory/rating constraints: RBC requirements, rating agency capital model outputs, and jurisdictional cession limits [VERIFY]
- Retrocession details: Any retro covers purchased by reinsurers that affect credit assessment
Workflow
Map the current program
- Diagram each layer: proportional (quota share, surplus) and non-proportional (per-risk XOL, catastrophe XOL, aggregate stop-loss)
- Record attachment points, co-participation, limits, reinstatement terms, and sunset/commutation clauses
- Identify gaps or overlaps between layers and any uncovered exposure corridors
Analyze cession efficiency
- Calculate cession ratios by line of business and compare to peer benchmarks
- Model net retained volatility under current structure using historical and stochastic loss scenarios
- Evaluate whether proportional vs. non-proportional mix appropriately balances earnings stability against cost of risk transfer
- Test alternative structures: higher retentions, aggregate deductibles, multi-year deals, or indexed triggers
Assess counterparty credit and concentration
- Review each reinsurer's financial strength rating and trend (stable, positive, negative outlook)
- Calculate single-reinsurer and top-5-reinsurer concentration as a percentage of total ceded premium and recoverable balances
- Evaluate collateral adequacy: letters of credit, trust accounts, funds-withheld arrangements
- Flag any reinsurer on regulatory watch lists or with disputed balances [VERIFY]
Price and benchmark layers
- Compute rate-on-line (ROL), rate-on-line adjusted for reinstatements, and expected loss ratio for each layer
- Compare current pricing to catastrophe model output (e.g., AIR, RMS, Verisk) expected losses and historical burn cost
- Evaluate sliding-scale and profit-sharing commissions for proportional treaties — model commission outcomes under different loss scenarios
- Benchmark against market indices (Guy Carpenter ROL Index, Gallagher Re rate monitors) where available
Model net retained position
- Run deterministic and stochastic scenarios (1-in-100, 1-in-250 return periods) on the net retained book
- Calculate impact on RBC ratio, rating agency capital adequacy, and economic capital metrics
- Stress-test for adverse development: reserve deterioration, clash events, correlated catastrophe losses
- Quantify earnings-at-risk and capital-at-risk with and without proposed program changes
Formulate renewal/restructuring recommendations
- Rank alternative structures by cost efficiency (cost of reinsurance per unit of volatility reduction)
- Identify optimal retention levels balancing premium retention, capital relief, and tail-risk protection
- Recommend reinsurer panel adjustments based on credit quality, pricing, and relationship value
- Outline transition plan if restructuring mid-term (commutation mechanics, notice periods)
Output
- Program summary table: Layer-by-layer breakdown showing type, attachment, limit, rate, reinsurer panel, and ratings
- Cession optimization analysis: Current vs. proposed structures with modeled net retained loss distributions
- Counterparty scorecard: Each reinsurer rated on financial strength, collateral, claims-paying history, and concentration share
- Pricing comparison matrix: ROL, expected loss, and margin analysis across layers and competing submissions
- Net retained risk profile: Capital adequacy metrics, earnings volatility, and tail-risk exposure under recommended structure
- Executive recommendation memo: Board-ready summary with key trade-offs, cost impacts, and action items for renewal
Quality Checks
- Verify all attachment points and limits sum correctly with no unintended gaps between layers
- Confirm loss data used for pricing is developed to ultimate and adjusted for trend/IBNR
- Cross-check reinsurer ratings against the most recent agency publications — ratings can change quarterly [VERIFY]
- Ensure cession ratios comply with jurisdictional limits (e.g., credit-for-reinsurance statutes, authorized vs. unauthorized reinsurer rules) [VERIFY]
- Validate that collateral requirements satisfy domiciliary state regulations for non-admitted reinsurers [VERIFY]
- Confirm reinstatement premium calculations match contract language (pro-rata as to time, pro-rata as to amount, or both)
- Flag any assumptions about correlation between perils or lines of business in stochastic models — document model limitations explicitly