Swing Rate-Non-Proportional Reinsurance

I have always wondered why Reinsured’s buy the layer with Swing Rate? Are they not better off retaining that layer? That too with a loading of 100/70.

I can understand why Reinsurers sell it. But never why Cedants buy it? Not even sure whether they realize that loading of 100/70 means a loading of 42.5% and not 30% on the burning cost.

Some brokers try to justify saying there is Minimum rate and Maximum Rate. I tell them-look at the range between minimum and maximum rate-it is so wide that more likely than not the final calculation will fall within this range.

Some brokers tell me-this layer has been bought for over a decade-how can we convince the cedant to retain it? My answer is simple-take last 5 or 10 years statistics of the final premium paid to reinsurers versus the claims recovered from this layer from reinsurers. Decision making becomes very simple.

I would have asked this question to many brokers and cedant buying their lowest layer with Swing Rates. I could never get a satisfactory reply. Only reply I heard is this is being bought for many years. I would be more than happy to get a satisfactory reply -I would be happy to change my views and drop this question for ever.

Blog by Atmaram Cheruvu