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The Actuary The magazine of the Institute & Faculty of Actuaries

European motor insurance

Swiss Re has launched ‘Pricing of motor quota share treaties’, a new brochure setting out how premiums can be profitably priced in the increasingly deregulated motor quota share market. Author Hans Schmitter considers the agreements between primary insurers and reinsurers on motor third party liability (TPL), motor own damage (MOD), and passenger accident insurance covers.

The study examines the difference between cover written on a ‘quota share’ basis (where a loss is divided in the same ratio as the premium between the direct insurer and reinsurer) and ‘excess of loss’ cover (a newer, more sophisticated, form of reinsurance written for large losses).

Insurers have traditionally paid little attention to the pricing of quota shares. Doing so was largely unnecessary in regulated markets with universally binding premium rates, because the magnitude of the expected claims ratio was known, as was the level of commissions that would make it possible to operate the reinsurance business at a profit over the long term. By contrast, in deregulated markets, and in new markets where the basis for the calculation of primary insurance premiums is still uncertain, there is no reliable empirical foundation for the pricing of quota share treaties. More at www.swissre.com.