WO2008017085A1

WO2008017085A1 - Method for organizing reinsurance

Info

Publication number: WO2008017085A1
Application number: PCT/AM2007/000001
Authority: WO
Inventors: Hovhannes Burmanyan
Original assignee: Hovhannes Burmanyan
Priority date: 2006-08-11
Filing date: 2007-08-02
Publication date: 2008-02-14

Abstract

The invention relates to the insurance methods including data processing operations using computer systems, in particular, method for organizing reinsurance based on reciprocity principle. For each insurance organization, guaranteeing sum account is formed in the system, consisting of stable and floating part, and reinsurance capacity is set directly dependent on total premium charged for each reinsurance and total sum of premiums, paid during certain number of days set by reinsurance rules, for responsibilities actually rebated by it. Proposition of each organization, on the expiry of certain preferential period, is denied inspection on the side other organizations participating in the system, if during certain amount of days, preceding the day when proposition is given, total premium received for responsibilities accepted by it is less than the total sum present on stable part of guaranteeing sum account. Provides a decreased insolvency probability of an organization and an increased reinsurance efficiency.

Description

Method for Organizing Reinsurance

Technical Field

The invention relates to the methods specially adapted for insurance purposes that involve data processing operations performed through computer systems, particularly to the method for organizing reinsurance based on a reciprocal exchange principle.

Generally, the probability to suffer some damage is usually called a risk or peril. If the risky (perilous) occasion is possible to describe and calculate its expectancy, then such risks are called insurable risks. For example, fire, robbery, accident are insurable risks, since it is possible to calculate their expectancy and average size of associated financial losses.

Insurance is a protection of physical person or legal entity against any loss. An insurer, i.e. an insurance company while concluding insurance policy with its clients i.e., insureds, assumes responsibility in exchange for some amount called insurance premium, in case of insurable occurrence, to pay the insured or its legal successor some amount mitigating the financial loss, which is called an insurance amount.

Reinsurance is used by insurance companies to share out their risks with other insurers. According to a reinsurance agreement an insurer, who is frequently mentioned as primary insurer, reinsured or assignor company or cedent, cedes or assigns to the reinsurer some or all risks and their respective premiums. Afterwards, the reinsurer agrees to compensate the cedent all types and quantity of the adapted losses sustained.

Among the reinsurance agreements pro rata reinsurance is widely prevailed with its quota share reinsurance. According to quota share reinsurance agreement the reinsurer assumes some declared interest-bearing part of each insurance policy and then in the same proportion becomes a participant in premiums and losses. For example, the insurer's capabilities may allow him insuring the risk only within the limits of 1000000 drams, however purchasing a pro rata reinsurance policy he may double or triple this limit. For example, an insurance company may purchase a 50% quota share reinsurance agreement and in this case insurance company and reinsurer will equally share between each other all premiums and losses. Many reinsurance distributions are not distributed with single reinsurer, but among a number of reinsurers organizing reinsurance markets, syndicates, auctions and other unions and reinsurance systems for that.

Nevertheless, it should be noted that insurance company according to insurance policy must compensate its insured against the latter' s losses irrespective of the fact whether the reinsurer provides compensation to the insurance company. Many insurance companies get into awkward situation with buying a reinsurance policy at reinsurance companies, which do not or cannot pay their loss compensation share.

As a result of it approximately a half of the insurance companies may get into a situation when only a part of insurance premium will remain at their disposal, but for all that they shall bear personal responsibility for the compensation against the entire loss. This fact is actual and gives concern when reinsurance is bought at an insurer who conducts its activity abroad. It should be borne in mind that losses occur after insurance premiums and in case of some accidents related with production (for example, related with pollution) losses can occur many years later. In the meantime local insurance companies in newly developing countries due to their scanty financial capabilities and lack of confidence for each other conclude reinsurance agreements with the most successful and reputed foreign insurance companies. It leads to undesirable currency outflow, increases in probability of bankruptcy with local insurance companies (i.e. probability of exceeding the payment amounts stipulated by liabilities in terms of the net amount of company premiums) and does not contribute to the development of local insurance industry.

To avoid the stated negative phenomenon, the aforementioned reinsurance markets, syndicates and auctions organize insurance companies participating therein through providing for a possibility of reciprocal exchange of assumed liabilities (risks). This means that any insurer participating in the stated unions or systems are enabled both to offer other system insurers a part of assumed direct obligations under its respective insurance agreements, and assume a part of obligations offered by other system insurers.

Background Art

A method for implementing reinsurance among a group of insurance companies with application of countable system is known (see application for US patent JVb 20020143584, IPC⁸ G06Q 40/00, 2002) according to which:

- reinsurance rules are established with the help of the system,

- capacity criteria for reinsurance are established for each reinsurer, i.e. entity assuming responsibility, - an offer is received from cedent to reinsure the insurance policy,

- conformity of the mentioned offer to the reinsurance rules is evaluated and the offer corresponding to the indicated rules is made available to all system participants for review,

- the prospective reinsurers are enabled to consider the given offer and each of them within the scheduled period is enabled to input information on the price of the part of the risk of the offered insurance, which it is ready to accept, and on the size of appropriate reinsurance premium owing to him,

- conformity of the information input by the perspective reinsurers to the reinsurance rules and capacity criteria are evaluated during the given period, as well as information corresponding to the given rules and criteria is made available to relevant party ceding the insurance.

This mode allows performing reinsurance among insurance companies based on the principle of reciprocal exchange of liabilities, however preservation of the principle of reciprocal exchange of liabilities during application of the given mode depends on the level of voluntariness and honesty of the insurers and does not guarantee mandatory and continual application of this principle. Particularly, the organizer of such reinsurance (sponsor) as a criterion of reinsurance capacity of each reinsurer sets up the maximum participation level required from the system per one transaction of each reinsurer in each reinsurance. For example, the sponsor can establish that the maximum reinsurance capacity per one transaction of the reinsurer under each insurance offered to the system must be equal to 50% of the entire insurance policy. Such restriction is aimed at guaranteeing sharing of risks among several reinsurers.

This means that such restriction does not encourage the liability assuming reinsurer to cede, in its turn, this liability to other insurance companies - system participants. Such reinsurance does not contribute to the formation of such capital structure (i.e. correlation of equity capital and loan capital) of the company participating therein, which could guarantee full and unconditional implementation of the assumed obligations by the latter. The probability of bankruptcy of the organization participating in the given reinsurance is rather high, since the guarantees of full and unconditional implementation of the assumed obligations entirely depend on subjective estimations of the sponsor organizing reinsurance, which, in their turn, are formed based on the documents submitted by the participating organizations, and the indicated documents can be inaccurate.

Disclosure of Invention The objective of this invention is aimed at reducing the bankruptcy probability for each organization participating in reinsurance with the help of forming capital structure, which provides maximum guarantee within the database of the system for full and unconditional implementation of the obligations assumed by the organization.

The essence of the invention is that the reinsurance method among a group of insurance companies is exercised with application of computing system, concurrently: - reinsurance rules are established with the help of the system,

- reinsurance capacity criterion is established for each reinsurer,

- an offer for reinsuring the insurance policy is received from the cedeiU by means of a computer data input device, - conformity of the indicated offer to the reinsurance rules is evaluated with the help of the system server, and the offer corresponding to the given rules aimed at their review is made accessible for all system participants of with the help of monitors of the computers,

- the prospective reinsurers are offered an opportunity to review the mentioned offer and each of them is enabled, within the specified period, to provide information on the amounts of premium for appropriate reinsurance due to them by means of their own computer data input device,

- within the specified period the given information is received from the prospective reinsurers with the help of their own computer data input device, and its conformity to the reinsurance rules and capacity criterion is evaluated by means of a system server and information corresponding to the given rules and criteria is made available for appropriate party ceding the insurance by using monitors of the computers. In accordance with the invention,

- an account for the guarantee amount consisting of stable and floating parts is formed in the system database for each insurance company accepting the reinsurance rules, - minimum guarantee amount no less than those established by the reinsurance rules is received from each insurance company accepting the reinsurance rules, the value of which is entered into the stable part of the aforementioned account,

- an amount no less than the size of the premium for the offered reinsurance liability is received from each cedent along with the offer for reinsurance of the insurance policy as a security for the offer and as a indispensable condition for system utilization, the value of which is deposited into the floating part of the aforementioned account,

- the payment amounts for the services rendered by the cedent as established by the rules are transferred to the account of the sponsor from the account of the stable part of the guarantee amount of the cedent by evaluating the conformity of the offer of each cedent by means of the system software,

- an amount calculated by formula A»B-C is established for each reinsurer as reinsurance capacity, and as a criterion for this amount, it is established that this amount is above zero, where: "A" - is the sum total of reinsurance premiums for the part of the offer, which is accepted by the given reinsurer during a certain number of days established under the reinsurance rules preceding the acceptance date,

"B" - is a number of insurance companies with reinsurance capacity above zero, which are the offerees at the moment of making offer by the cedent,

"C" — is an expected amount of reinsurance premium for the acceptance of any offer made by the given reinsurer,

- aimed at provision of each new insurance company accepting the reinsurance rules with an opportunity to accept offer from other companies, such new insurance company is provided with a conditional amount for reinsurance capacity by means of inputting it into the system database for a certain validity period and certain sizes as specified by the reinsurance rules, during the validity of which the sum total for reinsurance of offers accepted from the companies is accounted after expiration of this period,

- evaluating the conformity of information provided by each reinsurer, a reinsurance premium amount payable to the reinsurer is transferred by means of the system software from the floating part of the amount of the guarantee account of the party making an appropriate offer to the stable part of the amount of the guarantee account of the given reinsurer, and payment amounts established by the rules for the services rendered are transferred from the stable part of the amount of the guarantee account of the party providing the information (offer accepting party) to the stable part of the sponsor's account,

- an offer made by each insurance company accepting the reinsurance rules after the preferential period set up by the given rules is lost for review by other companies participating in the system, if during a certain number of days set up by the reinsurance rules proceeding the date of offer submission the premiums sum total received for the assumed liabilities is less the amount available on the stable part of the guarantee account.

Brief Description of Drawing

The essence of the invention is explained by the following figures, which depict: Fig.l - a flow chart illustrating an interconnection between a group of insurance companies by means of computer system for practice of the proposed method, , Fig.2 - a view of the main web page of the system's web site, Fig.3 - a view of "Offering" web page of the system's web site, Fig.4 - a view of "Reveiw" web page of the system's web site, Fig.5 - a view of a separate web page for non-accepted offer, Fig.6 - a view of a separate web page for accepted offer of one participant, Fig.7 - a view of a separate web page for accepted offer of two participants,

- The computing system or computer network (1) is established, operated and maintained by a sponsor who coordinates the system. This system operates with the help of global computing (computer) network (Internet), however other computing or communication networks can be used for that. The system (1) includes a database (2), a server (3) and a firewall (4), which are selectively accessible through the internet from computers of the system users (insurance companies) (5). The database (2), the server (3), firewall (4) and software run thereon to store, provide access to and manipulate data stored in the database (2) or on the server (3) and firewall (4), may collectively be referred to as a system server (6) connected to the Internet (7). By using web browsers on their computers (5) the system users may connect to the system server (6), which responds to requests and commands submitted by means of data input devices (for example, keyboard or mouse) of computers of the system users to generate pages of a reinsurance system web site, through which a part of the proposed method may be practiced.

Best Modes for Carrying Out the Invention

The method is carried out by the following way:

Before the very start of the reinsurance process its sponsor with the help of the system coordinated by the latter, establishes the reinsurance rules, which are entered into the system database, are reflected on the system software and proposed to insurance companies. According to these rules, all insurance companies accepting these rules are enabled to reciprocal exchange of liabilities. This means that any insurance companies accepting the aforementioned rules are enabled both to offer other insurers of the system a part of direct liabilities assumed under insurance agreements, and accept from other insurers of the system a part of the liabilities offered by them. The sponsor gives each insurance company accepting the rules an identification user name and password to ensure their secure access to information of the server (6) for operation of the system programs.

The amount of the guarantee account consisting of stable and floating parts is formed for each insurance company accepting the rules in the system database (2). A guarantee amount (for example, 150000 drams) as set up by the reinsurance rules, which is deposited to the stable part of the abovementioned account in the database of the system. Along with the offer, an amount no less than the size of the premium for the offered liability reinsurance, the value of which is deposited to the floating part of the aforementioned account is received from each ceding party on reinsurance of any insurance policy as a security for the offer and indispensable condition for system utilization. For each reinsurer, i.e. company, who during the reinsurance process may wish to assume liability, a reinsurance capacity is set up which is calculated by A»B-C formula, and as a criterion for it, this amount is set up to be above zero, where:

"A" - is a reinsurance premium sum total for the part of the offer, which is accepted from the offers of the given reinsurer during certain number of days set up by the reinsurance rules preceding the acceptance date,

"B" - is a number of insurance companies with reinsurance capacity above zero, which are offerees at the moment of making offer by the cedent,

"C" - is an expected amount of reinsurance premium for the acceptance of any offer made by the given reinsurer,

With the view of giving opportunity to accept offers by other companies, each new insurance company accepting the reinsurance rules is provided with a conditional amount for reinsurance capacity by being deposited to the system database for a certain period of validity (for example, 40 working days) and in certain sizes (for example, 50000) as set up by the reinsurance rules. In addition, the sum total of the premiums for reinsurance of offers, accepted from the company during its validity period, is accounted after expiration of such period.

The reinsurance rules also adapted a preferential period (for example, 30 working days from the date of accepting the given rules by the participant), upon expiration of which the offer made by each insurance company loses an opportunity to be reviewed by other companies participating in the system, if during a certain period of time set up by the reinsurance rules (for example, 10 working days) preceding the date of making offer, the premiums' sum total received for the assumed liabilities is less the amount available on the stable part of its guarantee account. The rules also established the amount of payments for services rendered by the sponsor. In addition to the aforementioned, for cedent the rules may also set up the minimum amounts of their own participation into the insurance amounts. For example, it can be set up that the minimum amount of own participation of the party making the offer for the insurance amounts with the value up to 500000 drams can constitute 50% of the given amount, and with the value from 500001 up to 2500000 drams - 20%. Each insurance company (user, participant) accepting the reinsurance rules is enabled to enter its conditional name and password on the registration web page of the site of the system and enter the main web page of the site (See Fig. 2). By means of selecting various web pages on the main page of the system site, a user is secured with access to appropriate information of the system server (6). For example, by selecting "Offering" web page, an insurance company, having filled-in the established offer form (See Fig. 3) with the help of data input device of its computer and having entered it into the system is given an opportunity to offer the insured or prepared for insurance liability. The offer should by all means contain the object of reinsurance (for example, "cargo insurance", "passenger insurance", etc.), the offered amount of reinsurance and offered amount of premium for reinsurance. For instance, four insurance companies can take part in reinsurance, an organization conditionally named as XXX can offer for reinsurance its insured risk (for example, car hijacking insurance), the insurance amount of which is 1200000 drams and insurance premium (insurance) is 60000 drams. This company may keep, for example 30 percent of the insurance amount and offer the rest 70 percent (840000 drams as reinsurance amount and 42000 drams - as reinsurance ₍ premium respectively) both to all participants and to any specific reinsurance participant, which with the help of a monitors and their computer can consider this offer. This means that before making such offer, XXX company as a requirement for utilization of the system and provision of the offer should have secured no less than 42000 drams on the floating part of the amount of its guarantee account. Thus, an offer for reinsurance of insurance policy is received from the ceding party.

Then, by means of the system server and its software the offers of ceding companies entered into the system are evaluated for the conformity to the reinsurance rules, and offers, through the main page of the site - "Review" web page (See Fig. 4), are made available for review of all system participants (or specific participant) by means of monitors of their computers and for their acceptance through data input devices. Additionally, the offers, which do not conform to the reinsurance rules become unavailable for review, i.e. the system software does not allow entering them onto the "Review" web page. Concurrently, at evaluation of the offers entered into the system by means of the system software, payment amounts for the rendered services are transferred from the stable part of the amount of the guarantee account of the parties making the offer. For example, the rules may set up the following payment amounts: 50 drams for each offer entered into the system, 25000 drams as monthly subscriber's fee for system utilization.

Having selected the main page of the site - "Review" web page, the perspective reinsurers are given an opportunity with the help of the monitors of the computers to review the denoted offers, and having selected any offer each of them is enabled to review the detailed content of the given offer on a separate web page (See Fig. 5). On the separate web page of the offer the reinsurers are given an opportunity at specified time period (for example, during two working days from the moment of entering the offer onto the web page "Review") to enter information on the payable amount of the respective premiums for reinsurance with the help of data input devices of their computers and present it to the system server by pressing the key "Accept". For example, a company with reference designation YYY may review a separate web page of XXX company (See Fig. 5) and wish to accept 15000 drams of 42000 drams for the reinsurance premium offered by XXX company.

Then, with the help of the system software the information received from the reinsurers is evaluated to conform to the reinsurance rules and capacity criteria, and with the help of the web page "Review" this information is made available both to the parties ceding the appropriate insurance and other system participants. From the moment of the information input, the relevant agreement is deemed concluded.

At the same time, at evaluation of conformity of the offers entered into the system with the help of the system software, payment amounts for the rendered services as set up by the rules are transferred from the floating part of the amount of the guarantee account of the party making the appropriate offer to the stable part of the amount of the guarantee account of the party accepting this offer. And payment amounts set up by the rules for the services rendered are transferred from the stable part of the amount of the guarantee account of the party providing the information (offer accepting party) to the stable part of the sponsor's account. For example, in the case mentioned above, the floating part of the amount of the guarantee account of XXX company will decrease, and the stable part of the amount of the guarantee account of YYY company will increase by 15000 drams. Concurrently, it can be set up by the rules that the amount of payment for the services rendered by the sponsor is equal to 1 (one) percent of the premium for the accepted part of the offer, i.e. the stable part of the amount of the guarantee account of YYY company will decrease by some more 150 drams. In this case the reinsurance capacity of YYY company calculated by formula A¹B-C will decrease by 15000 drams and will constitute 35000 drams, since before acceptance this company has possessed only 50000 conventional drams of reinsurance capacity and it has not yet made any reinsurance offer (i.e. "A" is equal to zero). Meanwhile, if XXX company wishes to accept any offer, then its previous reinsurance capacity after the indicated transaction will increase by 45000 drams and will constitute 95000 drams, since before making the offer and its acceptance this company has had only 50000 conventional drams of reinsurance capacity, the total amount of premiums during 10 working days before the acceptance of this offer for reinsurance of the accepted part of its offers (i.e. "A") is equal to 15000 drams, the number of insurance companies (i.e. "B") - offerees at the moment of making the offer, whose reinsurance capacity is above zero, is 3 (three), and the expected amount of reinsurance premium for acceptance of any offer (i.e. "C") is still zero (this means that the reinsurance capacity of XXX company after the above transaction will be 50000+15000'3-0=95000 drams). The offer of XXX company may be accepted by the companies with identification names ZZZ and HHH participating in the reinsurance. For example, ZZZ company may also

, review a separate web page (See Fig. 6) of the offer of XXX company already accepted by

YYY company and accept the balance of 42000 drams of reinsurance premium offered by XXX company, i.e. 15000 of 27000 drams. In that case the stable part of the amount of the guarantee account of ZZZ company will increase by 15000 drams, and the reinsurance capacity will decrease by 15000 drams. At the same time, HHH company may review a separate web page (See Fig. 7) of the offer of XXX company already accepted by YYY and

ZZZ companies and accept the balance of 42000 drams of reinsurance premium offered by XXX company, i.e. 10000 of 12000 drams. In that case the stable part of the amount of the

^■ guarantee account of HHH company will increase by 10000 drams, and the reinsurance capacity will decrease by 10000 drams. In the meantime, the reinsurance capacity of XXX company after three indicated acceptances will constitute 170000 drams, i.e.

[(15000+15000+10000>3-0+50000] drams. Non-accepted part in relation to the offer premium of XXX company will make 2000 drams (since 42000-40000=2000) and will be left at own participation of XXX company. Concluding other offer, XXX company may again enter these 2000 drams of insurance amount into the system. To make other system participants interested to accept it, XXX company may mention an amount of reinsurance premium higher than that mentioned by the company at the first time while entering it into the system.

After accepting the reinsurance rules by each insurance company in the beginning of a working day following after the completion of the period set up by these rules (for example, at the beginning of the 41^st day), the amount of reinsurance capacity of the given company will decrease by the conventional amount in drams set up by the rules (for example, by 50000 drams), irrespective of the amount of reinsurance capacity this company has. For example, if reinsurance capacity of any company by the end of the 40^th working day is 75000 drams, then in the beginning of the 41^st working day it will make 25000 (i.e. 75000-50000) drams. And if reinsurance capacity of any other company is 30000 drams, then in the beginning of the 41^st working day it will constitute 0 (zero) (i.e. 30000-50000) drams, and the system software will not allow this company accepting any offer until any of the risks offered by the given company is accepted by any other company. This means that in accordance with the suggested method, in addition to accepting liabilities each reinsurer is obliged to personally cede a certain amount of its liabilities.

At the same time, according to the suggested method, each offer cedent is obliged by means of the system software not only to cede liability during the preferential period established by the rules (for example, during 30 working days), but personally to accept such amount of liability so that during the days established by the rules (for example, during 10 working days) preceding the end of the preferential period, the total amount of premiums received by the cedent for the accepted liabilities is no less than the amount available on the stable part of its guarantee account.

Thus, the method of concluding reinsurance agreements allows forming in the system database a capital structure of the company participating therein in a way to ensure maximum guarantee for full and unconditional implementation of the obligations assumed by the latter, and to lessen the role of the sponsor regulating the system, as well as its interference into relations of the parties, and in the long run to lower the possibility of bankruptcy of the company participating therein.

I l

Claims

Claims:

The method for organizing reinsurance provides for the setting up of reinsurance rules by means of information system, determine a criterion for reinsurance capacity for each reinsurer, provide for a receipt with the help of data input device of the computer of an offer from reinsurance cedent to reinsure insurance policy, with the help of the system server evaluate the conformity of the indicated offer to the stated rules and make the offer complying with these rules available for all the participants of the system through monitors of their computers, enable the perspective reinsurers to review the denoted offers and each of them is given an opportunity at the scheduled dates to provide information with the help of data input devices of their computers on the payable amount of the respective reinsurance premium, during the specified period receive from the perspective reinsurers with the help of data input devices of their computers the indicated information, evaluate with the help of the system server its conformity to the specified rules and criteria and with the help of the monitor of the system of the computer of the respective company ceding insurance make the information corresponding to the given rules and capacity criteria available for review, is characterized in that for each insurance company accepting the rules in the system database an amount of the guarantee account consisting of stable and floating parts is formed, a guarantee amount no less than the minimum amount set up by the rules is received from each indicated insurance

, company, the value of which is entered into the stable part of the above account, is received from each cedent along with the offer to reinsure insurance policy as a security for the reinsurance offer of the insurance policy and a indispensable condition for system utilization, the value of which is entered into the floating part of the above account, while evaluating the conformity of the offer of each cedent by means of the system software, payment amounts against the services rendered by the sponsor as established by the rules are transferred from the stable part of the guarantee account of the party providing the information (offer accepting party) to the account of the sponsor, an amount calculated by formula A⁰B-C is set up for each reinsurer as reinsurance capacity, and as a criterion thereof, it is determined that this amount should be above zero, where:

"C" - is an expected amount of reinsurance premium for the acceptance of any offer made by the given reinsurer, in addition, by entering it into the database a conditional amount of reinsurance capacity is provided for a certain period of time and sizes, set up by the rules, for each new insurance company accepting the stated rules aimed at giving an opportunity of accepting offers from other companies, during the validity of which the sum total of reinsurance premium received for the accepted parts of the offers of the company, are accounted upon expiration of that period, evaluating with the help of the system software the conformity of the information of each reinsurer, the reinsurance premium amount payable to the reinsurer is transferred from the floating part of the guarantee account of the cedent to the stable part of the guarantee account of the reinsurer of that offer, and payment amounts for the services rendered by the sponsor is transferred from the stable part of the guarantee account of the cedent to the stable part of the guarantee account of the sponsor, upon expiration the certain preferential period established by the rules, the offer made by each insurance company accepting the rules is deprived of the opportunity to be reviewed by other companies participating in the system, if during a certain number of days set up by the rules preceding the offer making date the sum total received for the accepted liabilities is less the amount available on the stable part of the guarantee account.