A World Apart: Reinsurance of Life, Health, and Annuity Risks

Historically, most reinsurance arbitrations have concerned property & casualty claims. Thus, the issues and terminology in life, health, and annuity reinsurance disputes, which differ markedly from P&C disputes, often are unfamiliar even to long-term reinsurance practitioners. Very briefly, the following are notable:

Role of actuaries: Actuaries play a crucial role in Life / Health / Annuity arbitrations, as witnesses, experts, and decision-makers. They often approach problems from a background rooted in deterministic or stochastic modelings, and evaluate randomness of results depending upon their confidence in the data.

Terminology bearing upon loss experience: In life insurance, “mortality rates,” which notably have deteriorated in recent years, drive profit or loss. In health and disability business, “benefit ratios” may vary depending upon persistency, amortization of acquisition costs, and claim continuance. (“Continuance” usually describes how long a claim will continue to pay benefits). Another key metric, “persistency,” concerns the rate at which policyholders keep policies in force and thus is counter to the “lapse rate.”

Cause of disputes: Unlike the P&C realm, large disputes often do not directly concern any particular “loss event.” Life treaties often reinsure huge blocks of policies and therefore treaty administration complaints are more common, especially when cessions of premiums or claims have been omitted or misstated. Similarly, disputants have warred over the right to force premium increase or to terminate a treaty.

While the foregoing merely touch the surface, they illuminate how unique dynamics crucially impact the Life / Health / Annuity reinsurance dispute in ways foreign to P&C reinsurance disputes. In a forthcoming blog entry I will address the increase in life reinsurance disputes arising in the context of the rise in mortality rates that began five years ago.