REINSURANCE. Caribbean Conference on Health Financing Initiatives Bermuda November 23, 2011 Lynne Woolridge, FLMI, FALU, HIA

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2 REINSURANCE Caribbean Conference on Health Financing Initiatives Bermuda November 23, 2011 Lynne Woolridge, FLMI, FALU, HIA

3 AGENDA What is it? How is it used? Who are the players? How is it distributed? Underwriting criteria Traditional forms Lifecycle

4 What is reinsurance? Insurance for insurers Protection against financial aspects of risk Risk transfer process: Consumer Insurer Reinsurer

5 How is reinsurance used? Manage cash flow Mitigate frequency and/or severity Enhance operations Enhance credibility

6 Who are the reinsurers? 200 major professionals Swiss Re, Munich Re, Optimum Re, CIBC Re, Hannover Re, Sirius, Lloyd s Syndicates

7 How is reinsurance distributed? Direct Brokers Caveat: knowledge and expertise of staff

8 Technical/underwriting considerations Underwriting; actuarial science Historical data Environment Flexibillity

9 Forms of traditional reinsurance Proportional (quota share); non-proportional Quota share: share in a specified proportion Non-proportional: participate when loss amount exceeds specified limit Retention limit Non-proportional : Excess of Loss; Stop Loss, Catastrophe

10 Lifecycle Due diligence Negotiation Cession Administration Renewal or termination

11 THANK YOU Are there any questions?

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13 CCHFI conference presentation November 23, 2011 Reinsurance Slide 1 Title slide As well as being the current Vice President of the Insurance Association of the Caribbean, I am also the Chief Reinsurance Director for Redbridge, based in Coral Gables, Florida. Redbridge is an insurance management group which offers a range of support services, including reinsurance. I have 20+ years of reinsurance experience, having worked for Swiss Re in Canada, with Canada and the Caribbean as my primary territory. Slide 2 - Agenda 1. What is it? 2. How is it used? 3. Who are the players? 4. How is it distributed? 5. Underwriting criteria 6. Traditional forms 7. Lifecycle Slide 3 What is reinsurance? - Reinsurance is insurance for insurers - Insurance is the business of providing protection against the financial aspects of risk - Risk is transferred from the insured/consumer/business entity to an insurer, then on to a reinsurer - Although it s more common for a reinsurer to deal with an insurance company, for the purposes of this presentation, I ll use the term cedant to refer to the entity which cedes risk to a reinsurer Slide 4 How is reinsurance used? - It s a risk management tool to manage cash flow - It s used to mitigate frequency (unexpected fluctuations of annual losses) and/or severity (catastrophic events affecting insured risks) - It s also used to enhance insurer operations, such as actuarial support, and training - Finally, it can be used to enhance the credibility of the (claims) payor. In some instances, a (North American) facility may have experienced delays in the past when collecting payments from foreign governments. Having a credible reinsurer as your partner can provide a measure of comfort to the health facility, knowing that you have some of the reinsurer s capital at your disposal

14 Slide 5 Who are the reinsurers? - Globally, there are approximately 200 major professional reinsurers, with concentration among a small group - In Bermuda and the Caribbean region, the most visible reinsurers are Swiss Re, Munich Re, Hannover Re, Optimum Re, Sirius and Lloyd s syndicates - In general, reinsurance has not been used for social security schemes, however, most social security schemes are designed for territories with larger populations than most Caribbean islands Slide 6 How is reinsurance distributed? - Direct, i.e. the cedant and reinsurer negotiate directly, or - Via brokers third party intermediaries negotiate on the cedant s behalf. These brokers are intimately familiar with the region. Some of the more familiar ones are Aon Benfield, Guy Carpenter, and Willis. - My company, Redbridge, obtains 30% of its reinsurance business directly, and 70% via brokers - Important caveat: reinsurers expect a level of knowledge and expertise within the ceding companies/entities, and this expertise is well paid, so unless you re large enough to have staff dedicated to this risk management role, it s probably best to use an experienced intermediary Slide 7 What are the technical and underwriting considerations? - Underwriting is the process of risk selection, in this instance, deciding which of the risks to accept; actuarial science aids in determining the premium or price for the reinsurance - Historical data and other statistics are the basis for reliable forecasts of future trends - As an example, ideal data would be: total volume of claims paid for a period, breakdown of type of claim using classification such as ICD-9 or 10, # of members corresponding to those claims payments - It s also important to understand the environment in which the insurer or ceding entity operates, such as the details of the benefits package, how the local health facility operates and particularly whether there is the use of managed care to mitigate overall claims costs. In the case of Caribbean islands, it s ideal that there be on-island case management which would lessen the likelihood of patients/scheme participants needing to be referred overseas or the claims reaching catastrophic level - A social security scheme may not have the desired data, but that doesn t mean that a reinsurer can t work with them. Reinsurers are flexible in their approaches to business and will find ways to protect the scheme.

15 Slide 8 Forms of traditional reinsurance - Primary distinctions are proportional (also known as quota share) and non-proportional - In quota share, both the cedant and the reinsurer share premiums and claims on a given risk in a specified proportion - In non-proportional, the reinsurer only participates in the settlement of a claim when the loss amount exceeds a specified pre-determined limit, known as the cedant s retention - The retention limit is the maximum amount an insurer or cedant is willing to absorb for its own account - The most common non-proportional plans are Excess of Loss (applied to a single claim loss), Stop Loss (applied to a portfolio of claims) and Catastrophe (usually applied to multiple claims arising from a single catastrophic event) Slide 9 Lifecycle of a reinsurance arrangement - The first step is the selection of a reinsurance partner, the due diligence process - Negotiation of terms, using skilled personnel - Cession of risks as outlined in the reinsurance agreement - Administration of those risks - Renewal or termination of the agreement - Health reinsurance is usually written on an annually renewable basis - It s important to note that during the annual renegotiation, there s a review and analysis of performance, with the opportunity to make adjustments based on new findings or changes in the structure or environment. Slide 10 THANK YOU are there any questions?