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Finite Reinsurance

The New Choice in Global Reinsurance. Finite Reinsurance. Buyer’s Perspective. Earnings Acceleration/Smoothing Capital/Surplus Management Accounting Arbitrage Balance Sheet Engineering/Optimization M&A Tax Deferral. Seller’s Perspective.

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Finite Reinsurance

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  1. The New Choice in Global Reinsurance Finite Reinsurance

  2. Buyer’s Perspective • Earnings Acceleration/Smoothing • Capital/Surplus Management • Accounting Arbitrage • Balance Sheet Engineering/Optimization • M&A • Tax Deferral

  3. Seller’s Perspective • Motivation behind transaction is not primarily Risk Transfer • Defined maximum limit • Good balance between upside and downside

  4. Finite Deal Characteristics • Highly Structured • Defined Limit • Additional premiums to offset adverse experience • Funds Withheld or Funds Transferred • Profit Sharing • Multi-Year • Optionality • Explicit recognition of Investment Income

  5. LPT/Adverse Development Covers Prospective Aggregate Excess Multi-Year Funding Finite Quota Share Finite Reinsurance Products

  6. LPT/Adverse Development • Exit a line of business • M&A • Statutory Accounting benefit • Limiting adverse impact of run-off can increase value in the the eyes of rating agencies, regulators & investors

  7. Prospective Aggregate Excess • Can attach at, above or below plan • Allows company to access discount in reserves (acceleration of income) • Smooth results • CAT protection • Additional premiums for additional limit used

  8. Multi-year/Spread Loss • Pre and/or Post Funding of an event (often CAT) • Overall aggregate limit & sub-limits by accident year • Experience account for premiums and losses • Premiums after first year typically increase (especially if EAB is negative) • Often designed to be cancelled after first year (i.e. post loss funding)

  9. Finite Quota Share • Increase/enhance capacity • Lower cost than traditional quota share arrangements • Capped limit

  10. Transaction Example: Aggregate XOL • Coverage Summary • Plan Loss Ratio = 70% • Attachment Point = 50% • Limit = 35% (i.e. up to an 85% L/R) • Premium = 15% • EAB Credit Rate = 7% • Balance Sheet Impact (with 40% U/W Expenses) • Combined Ratio before coverage 110% • Combined Ratio after coverage 106%

  11. Aggregate XOL Example Aggregate Losses 85% Area of 70% Coverage 50%

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