New Swiss Re Technical Publication Issued for Calculating Claims Ratio in Third Party Auto Liability Insurance

Swiss Re announced that it has published a new brochure on the “Pricing of motor quota share treaties,” which will give brokers and insurers a guide on “how premiums can be profitably priced in ther increasingly deregulated motor quota share market.”

The publication, authored by Hans Schmitter, is the latest in Swiss Re’s “Technical Publishing series,” and considers “the agreements between primary insurers and reinsurers on motor third party liability (TPL), motor own damage (MOD) and passenger accident insurance covers.” It 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,” said Swiss Re. “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.”

According to Schmitter, a casualty specialist within Swiss Re’s Chief Underwriting Office, the report “complements Swiss Re’s existing range of publications and serves as an aid for reinsurers in arriving at appropriate commissions for motor quota share treaties.” He explained that “this publication is intended mainly for reinsurers who have to price reinsurance covers in practice and for primary insurers who require such prognoses for their planning calculations. It uses calculation examples to describe how to arrive at the claims ratio.”

Swiss Re said that printed copies are available (order no. 1493126_02) by fax with a complete postal address, to:

Zurich, tel. +41 43 285 2023
London, tel. +44 20 7814 3014

It also indicated that “All calculations described in this publication needed for pricing can be performed with the aid of the Excel file motorproppricing.xls, which is programmed in VisualBasic. The software is available free of charge from the e-mail address publications@swissre.com.”