The report reveals superior metrics for assessing risk transfer in reinsurance contracts, highlighting their significance.
This paper summarizes key results from the Report of the Casualty Actuarial Society (CAS) Research Working Party on Risk Transfer Testing. The Working Party defined and described a structured process of elimination to narrow down the field of reinsurance contracts that have to be tested for risk transfer. Perhaps more importantly, the Working Party offered two metrics for gauging risk transfer that are superior to the standard “10-10” Value-at-risk (VaR) test commonly used: the expected reinsurer deficit (ERD) and right-tailed deviation (RTD). These metrics are described, with examples. A related metric, the risk coverage ratio (RCR), is also described.
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Ruhm et al. (2007) studied this question.
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