REINSURANCE, RISK FINANCE AND SECURITISATION OF INSURANCE RISK

SHE Level 5
SCQF Credit Points 15.00
ECTS Credit Points 7.50
Module Code MMN225368
Module Leader Madhusudan Acharyya
School School of Computing, Engineering and Built Environment
Subject GCU London
Trimesters
  • A (September start)
  • B (January start)
  • C (May start)

Summary of Content

The aim of this module is to assist students in gaining a comprehensive understanding of how reinsurance functions as a risk transfer tool for insurance companies. This includes an evaluation of the various types of reinsurance contracts and how reinsurance can influence underwriting capacity and capital management. Furthermore, students will learn about non-traditional forms of risk transfer, such as catastrophe bonds, sidecars, collateralised reinsurance and industry loss warrants. Students will also be able to understand how these non-traditional forms of risk transfer influence the pricing and capacity in the traditional reinsurance markets. Lastly, students will gain an understanding of pricing techniques, accounting treatment of reinsurance and regulatory issues pertinent to reinsurance as well as other risk transfer instruments.

Syllabus

-360 1. Historical development of reinsurance and market structures for insurance risk 2. Proportional forms of reinsurance - quota share, surplus share and facultative obligatory 3. Non-proportional forms of reinsurance - excess of loss including per risk excess of loss, aggregated excess of loss, catastrophe excess of loss, etc. 4. Reinsurance Pricing 5. Reinsurance operating models and optimal underwriting of reinsurance business 6. Theory, principles and practices of designing reinsurance programmes 7. Reinsurance Accounting 8. Capital market theory and the financing of insurance risks - captives, equity and debt financing 9. Hedging and insurance securitisation - Cat Bonds, Cat Equity Puts, and Insurance Derivatives, etc. 10. Designing optimal balance sheets through structured and contingent financing instruments - CoCo Bonds, Loss Equity Puts, etc. 11. Climate Change and Weather Derivatives 12. Capital management in a regulated environment and integrated risk management solutions

Learning Outcomes

On successful completion of this module, students should be able to:-1. Evaluate the principles and types of reinsurance [CW1]2. Evaluate the application of reinsurance to different business lines [CW1]3. Evaluate reinsurance underwriting and programme design [CW1]4. Understand Reinsurance Technical Accounting [CW1, CW2]5. Understand non-traditional forms of risk transfer (e.g. ILS [Insurance linked securities] (e.g., catastrophe bonds), collateralised reinsurance, ILWs) [CW2]6. Understand the use of ILS products for capital and risk management [CW2]7. Understating the theoretical foundation and evaluate the pricing of reinsurance and alternative risk transfer contracts [CW2]8. Evaluate Contingent Risk Financing and Integrated Risk Solutions [CW1, CW2]9. Understand and design risk securitisation solutions for climate risk [CW1, CW2]10. Evaluate the operational, legal and regulatory issues relating to reinsurance [CW1]

Teaching / Learning Strategy

The learning and teaching strategy uses a blended approach of lectures, tutorials, labs and directed learning supported by GCU Learn. Lectures will be used to highlight the key issues in a specific topic and point the way towards relevant journal articles and other appropriate literature. Students are expected to prepare for following week's lectures on each topic by engaging in literature searches, undertaking relevant reading and where necessary, attempt computational questions. Every student will receive a comprehensive study guide in the form of a module handbook. The lectures will adopt a variety of teaching styles including seminar style contributions such as group discussions to enhance intellectual, critical and analytical skills. For more applied topics, students will be required to attempt relevant problem or scenario based questions prior to the lectures, providing the basis for deepening professional skills, knowledge and understanding. The lab sections will provide the medium for gaining practical skills through the use of spreadsheets to explore the lecture themes in more detail. Spreadsheet solutions and solutions to quantitative questions will be available on GCULearn. All students will be directed to further reading to support the theoretical and practical contents of the module.

Indicative Reading

Carter, R. Ralph, N. and Lucas, L. (2013) "Carter on Reinsurance", Vol. 1 and 2, 5 th Edition, Witherby Publishing Group Ltd, Edinburgh Banks, E. (2004) "Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance, and the Capital Markets", The Wiley Finance Series, 1st Edition Albertini, L. and Barrieu, P. (2009", The Handbook of Insurance-Linked Securities, Chichester, UK: Wiley Doherty, N. A. (2000) "integrated Risk Management - techniques and strategies for managing corporate risk", McGraw-Hill, Inc. Jarzabkowski, P., Bednarek, R. and Spee, P. (2015) "Making a market for acts of God - the practice of risk-taking in the global reinsurance industry", Oxford University Press Mike, S. and Paul, P. (2018) "Reinsurance", CII Study Text, M97 Advanced risk financing and transfer. London: CII. Study, text 997. Albrecher, H., Beirlant, J., and Teugels, J. (2017) "Reinsurance: Actuarial and Statistical Aspects", John Wiley & Sons Ltd. Dionne, G. ed., (2013) "Handbook of Insurance", 2 nd edition, Springer and Geneva Association, Peshkoff, A. and Bichisao, G. (2013) "Quantitative Assessment of Securitisation Deals", Springer Culp C.L (2011) Structured Finance and Insurance: The ART of Managing Capital and Risk, Wiley Krutov A. (2010) Investing in insurance risk: insurance-linked securities: a practitioner's perspective. Risk Books, London. Rohde O.H. (2013) Natural catastrophes: risk financing and insurance issues.. Nova Science Publishers, Inc., Hauppauge, New York. Melnikov A.V (2011) Risk analysis in finance and insurance. 2nd ed. CRC Press, Boca Raton, Florida. Borghesi A and Gaudenzi B (2013), Risk management: how to assess, transfer and communicate critical risks. Springer, Milan. Newspapers and Magazines: Insurance Journal at <https://www.insurancejournal.com/> Business Insurance at <https://www.businessinsurance.com/> Best's Review at <http://www.ambest.com/review> Newsweek Global at http://www.thedailybeast.com/ <javascript:__doLinkPostBack('','target~~URL||args~~http%3A%2F%2Fwww.thedailybeast.com%2F||type~~','');> Claims at http://www.claimsmag.com/ <javascript:__doLinkPostBack('','target~~URL||args~~http%3A%2F%2Fwww.claimsmag.com%2F||type~~','');> The Journal [official magazine of the Chartered Insurance Institute] Insurance Advocate at http://cms.nationalunderwriter.com/cms/ia/website <javascript:__doLinkPostBack('','target~~URL||args~~http%3A%2F%2Fcms.nationalunderwriter.com%2Fcms%2Fia%2Fwebsite||type~~','');> Risk Management at http://www.rmmag.com/ <javascript:__doLinkPostBack('','target~~URL||args~~http%3A%2F%2Fwww.rmmag.com%2F||type~~','');> Financial Times at www.ft.com <http://www.ft.com> The Wall Street Journal at www.wsj.com <http://www.wsj.com> The Insurance Times at www.insurancetimes.co.uk <http://www.insurancetimes.co.uk> Journals: Journal of Insurance Regulation European Journal of Risk Regulation Geneva Papers on Risk and Insurance - Issues and Practice Asia-Pacific Journal of Risk and Insurance Journal of Risk Research Journal of Risk and Insurance Journal of Risk and Uncertainty Risk Management and Insurance Review Risk Analysis: An International Journal Journal of Insurance Issues Connecticut Insurance Law Journal Internet sites: Geneva Association at www.genevaassociation.org <http://www.genevaassociation.org> European Insurance and Occupational Pensions Authority (EIOPA) at www.eiopa.europa.eu <http://www.eiopa.europa.eu> International Association of Insurance Supervisors (IAIS) at www.iaisweb.org Bank of England at www.bankofengland.co.uk <http://www.bankofengland.co.uk> Financial Conduct Authority (FCA) www.fca.org.uk <http://www.fca.org.uk> ARTEMIS at www.artemis.bm <http://www.artemis.bm> Association of British Insurers (ABI) at www.abi.org.uk <http://www.abi.org.uk> Chartered Insurance Institute (CII) www.cii.co.uk <http://www.cii.co.uk> The Insurance Institute of London at www.iilondon.co.uk <http://www.iilondon.co.uk> Insurance Information Institute at www.iii.org <http://www.iii.org> CRO Forum www.thecroforum.org <http://www.thecroforum.org> Captives 101: managing cost and risk. www.towerswatson.com <http://www.towerswatson.com>. Captive benchmarking report 2016: creating security in an uncertain world. www.marsh.com <http://www.marsh.com>. Sigma Magazine: www.swissre.com <http://www.swissre.com> A guide to captives. Federation of European Risk Management Associations (FERMA). www.ferma.eu Database for Research: A M Best Axco Insight Compliance Insurance Law Database [i-law] Insurance Intelligence Centre GlobalData Thomson Reuters DataStream and EIKON

Transferrable Skills

This module will develop the following skills in a manner that encourages independent initiative and critical thinking: -360b7 Personal and interpersonal skills -360b7 Oral and written communication skills b7 Data gathering, analysis and interpretation b7 Use of Excel and Models for data analysis b7 Problem solving and critical thinking b7 Ability to work independently b7 Research skills in order to complete the courseworks As a part of the broader transferable skills students will be able to demonstrate: -360 1. Advanced knowledge in the subject area. 2. Advanced usage of computers and associated software as a learning tool to explore models, ideas and for problem solving.

Module Structure

Activity Total Hours
Assessment (FT) 40.00
Tutorials (FT) 2.00
Seminars (FT) 12.00
Lectures (FT) 24.00
Independent Learning (FT) 72.00

Assessment Methods

Component Duration Weighting Threshold Description
Course Work 02 n/a 70.00 45% 3,000 words analytical report on a selected topics or/and exercises [individual submission for both on-campus and distance learning students]
Course Work 01 n/a 30.00 45% 2 hours MCQ type Online Cass Test [individual submission for both on campus and distance learning students]