SOA - Letter to the Editor

Letter to the Editor
by Society of Actuaires

Dear Gaetano,
I just read your panel discussion, "Negotiating [the] Reinsurance Curves," in the August/September 2006 issue of The Actuary. Congratulations to Mary, Jimmy, Ronnie and you on a very interesting discussion. Only Jimmy Atkins could introduce himself as just Jimmy and have everyone know who he is.

As one who spent 35 years in the reinsurance business, I was always a firm believer in the principle that the reinsurance agreement is a "gentlemen's agreement based on mutual trust." I was pleased to hear Jimmy say that "... this is still very much a relationship–driven business and there is a good bit of trust and responsibility between the parties."

Since I retired in 1999, I don't know what happened in "the fall of 2004," but it must have been significant. Having the reinsurer denying to pay a claim seems to be a relatively new development. Only if the case had been reinsured with the wrong reinsurer or there had been some error of omission do I recall having either an adjustment to the amount of the claim paid by the reinsurer or having the claim paid by a reinsurer other than the original reinsurer. Except in the case of the Mullendore claim in the early 1970s, I never recall having put any reinsurance claims in Schedule F for resisted claims and even then it was only to strengthen the case for the claim not to be paid and to not give the claimant's lawyer an opportunity to refer to a reinsurer's statutory annual statement and say, "See, the reinsurer isn't resisting payment of the claim."

I can recall another situation where two reinsurers shared the automatic account of a company and there was some question as to which reinsurer was responsible for paying the claim. Recognizing that the case was, in fact, reinsured with at least one of them, they each agreed to pay half the claim and then go into arbitration between the two reinsurers even though there was no actual agreement between the reinsurers, but there were agreements between the ceding company and each reinsurer.

The example, cited ($10 million risk, $500,000 retained) if it was an automatic case, is right at the 20 times multiplier binding limit. Perhaps the historic reluctance to grant 20 times automatic binding limits had some basis.

Under the P&C approach, I believe the reinsurer is duty–bound to "follow the fortunes" of the ceding company even for contested claims and is not given the option, as written in a life reinsurance agreement, to pay the full amount reinsured to the ceding company and let them do with the claim what they may. I look forward to Part 2 of the panel discussion.

Best regards,
Jim Pilgrim

Thanks for taking the time to write to The Actuary about the ceding company actuaries' panel discussion that appeared in the August/September 2006 edition. We appreciate your kind words and your insightful comments.

The life reinsurance world continues to evolve and it is clear that as an industry we are treading on new ground. From my own discussions with both ceding companies and reinsurers, it appears we may be starting to turn the corner. All of us in the reinsurance industry share your concerns and your optimism about the future. I personally share your opinion that the strength of this business is its commitment to strengthening relationships.

Many thanks again for sharing your insights with us.

Gaetano Geretto, FSA, FCIIA