Disability Claims Reinsurance
The reinsurance of closed blocks of disability claims, often referred to as a reserve buy-out, produces clear and compelling financial benefits for the ceding insurer. First, by transferring assets to the reinsurer in an amount less than the ceding insurer’s statutory reserve, permanent surplus is created. Second, the risk-based capital ratio of the ceding insurer will improve, as these assets and liabilities come off the books. Third, depending on various pricing parameters, the premium paid for the coverage may be less than the GAAP or IAS reserve held by the ceding insurer, producing a fixed stream of future income. Finally, as a risk-transfer mechanism, the ceding insurer is indemnified for fluctuations in morbidity, mortality, and interest rates.
Alpha Re is skilled at assuming closed blocks of disability claims and, in cases where the ceding insurer wishes to transfer claims administration to a third-party administrator, has successfully operated within the parameters set by the ceding insurer and administrator.
Of course, Alpha Re establishes proper trust accounts and/or letters of credit to allow the ceding insurer to take full balance sheet credit for the reinsurance ceded.