Alternative risk transfer

Who it is for

Heads of outwards reinsurance, reinsurance actuaries, ILS fund managers and analysts, retrocession underwriters, specialist brokers, insurer treasurers and solvency analysts.

What you will be able to do

• ·Describe the circuit of a cat bond, from the special purpose vehicle to the collateral, and say what exactly the investor loses when the trigger is met.
• ·Separate the four families of triggers on an insurance-linked instrument, and say which exposes the sponsor most and which exposes the investor most.
• ·State what a cat bond settles that traditional reinsurance does not, and name what it costs in return.
• ·Explain what fully posted collateral removes, and name what it does not remove.
• ·Locate the point of failure the Vesttoo collapse revealed in 2023, and say which verification it now imposes.
• ·Describe the structure of a sidecar and say why its temporary nature is its main attraction rather than a defect.
• ·Separate what a sidecar brings its sponsor from what a cat bond brings it, on the same exposure.
• ·Read an industry loss warranty and say what triggers it, what it pays, and what it never looks at.
• ·Compute what an ILW buyer receives and what it retains, on an event where its own loss and the industry loss diverge.
• ·Name the three causes that widen basis risk and say which one is corrected by the choice of trigger.
• ·Separate positive from negative basis risk, and say which of the two announces itself.
• ·Describe the chain of cession, retrocession and retrocession of retrocession, and say where the consolidated view of the risk is lost.
• ·Explain how a risk retroceded in a closed circle comes back to strike its original carrier, and say what that does to its capital requirement.
• ·Separate a retrocession that spreads a risk from one that circulates it, from what is known about the counterparties.
• ·State what an extreme mortality bond protects against that pooling a life book does not absorb, and name the four choices that build its index.
• ·Explain why a mortality shock securitizes where longevity risk resists, from the shape of the two risks rather than their size.
• ·Name the cause of the basis risk specific to mortality, and say in which two opposite directions it can run on one and the same book.
• ·Separate a loss portfolio transfer from an adverse development cover, by their effect on the balance sheet rather than by their name.
• ·State what a retrospective reinsurance transaction never extinguishes, and why the counterparty risk it creates is correlated with the peril transferred.
• ·Recognize a retrospective transaction that describes an accounting effect rather than a transfer, and name the question its board must ask.
• ·Describe the circuit of a captive and its fronting insurer, and say for what single reason the fronting insurer is indispensable to it.
• ·Correct a premium saving announced by a group that has just opened a captive, and name what should be concluded from it.
• ·Locate the credit point on which a fronting arrangement lives or dies, and say which verification the Vesttoo affair has imposed since 2023.
• ·Say what a state buys when it takes out parametric cover, and why the mismatch it buys is one of timing rather than of scale.
• ·Read a sovereign payout against the damage and say what that ratio establishes, from the Dominica case of 2017.
• ·Name the political form basis risk takes for a state, from the Malawi case of 2016, and say where it is settled.

The syllabus

Validation

Each course is validated by its questionnaire: a few easy questions, open to all, at the pass mark below. The specialization is validated once all its courses are, with no further questionnaire at this level. This check, unproctored and with a public answer key, does not prove knowledge under supervision.

6 questions per coursePass mark: 5 out of 6

What this specialization does not prove

This program attests to an understanding of alternative risk transfer instruments, of their triggers and of the basis risk they create. It attests to no underwriting, placement or asset management experience, no professional authorization, and it prepares for no regulatory examination.