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Effect of Reinsurance Attachment Points on Expected Claims Recoveries

Abstract

Reinsurance attachment points represent the level at which a reinsurer becomes responsible for losses under certain reinsurance arrangements, particularly excess-of-loss contracts. The position of the attachment point determines the portion of claims that remains with the insurer before reinsurance protection becomes effective. Consequently, attachment points are important in determining the amount of claims recoverable from reinsurers and the level of loss retained by the insurer. This study examines the effect of reinsurance attachment points on expected claims recoveries. It will assess how different attachment points influence the amount of claims expected to be recovered by an insurer from its reinsurance arrangements. The study will also examine the relationship between attachment points, retained claims, recoverable losses, and the overall distribution of claims between insurers and reinsurers. The study will focus on actuarial measures including claim frequency, claim severity, expected claims, retained losses, reinsurance recoveries, and recovery ratios. Different attachment point levels will be analysed to determine how changes in the point at which reinsurance coverage begins affect expected claims recoveries. Actuarial loss distribution techniques will be used to assess the potential recoveries arising from claims of different sizes. A quantitative research approach will be adopted for the study. Historical claims and reinsurance data will be analysed using descriptive statistics and actuarial techniques. Scenario analysis will be applied to compare expected claims recoveries under alternative attachment points. Probability distributions and expected loss calculations may also be used to estimate the amount of claims recoverable under different reinsurance structures. The study is expected to show that lower attachment points will generally result in higher expected claims recoveries because reinsurance protection will begin at a lower level of loss. Higher attachment points are expected to increase the proportion of claims retained by the insurer and reduce expected recoveries from reinsurers. The magnitude of these effects is expected to depend on the frequency and severity characteristics of the insurer's claims experience. The study is expected to provide useful information for insurers and actuaries in evaluating appropriate reinsurance attachment points. The findings may assist in balancing the amount of risk retained by insurers against the level of protection obtained through reinsurance. The study may also support more effective reinsurance programme design, claims management, and actuarial risk assessment. The study concludes that reinsurance attachment points are an important determinant of expected claims recoveries and retained insurance losses. It is therefore recommended that insurers use historical claims experience and actuarial loss modelling when selecting suitable attachment points. Careful assessment of claim severity, expected recoveries, retained losses, and the financial capacity of the insurer should guide the design of reinsurance arrangements.

Keywords: Reinsurance attachment points, expected claims recoveries, reinsurance recoveries, retained losses, excess-of-loss reinsurance, claim severity, claim frequency, insurance claims, loss retention, reinsurance protection, actuarial modelling, expected claims, recovery ratios, reinsurance structure, insurance risk.