Gurenko, Eugene N.Itigin, AlexanderWiechert, Renate2013-01-292013-01-292012-12https://hdl.handle.net/10986/12205Despite the existence of numerous quantitative approaches to the categorization of financial reinsurance contracts, often insurance regulators may find the practical implementation of the task to be technically challenging. This research paper develops a simple, affordable, and robust regulatory method that can help insurance regulators to categorize financial reinsurance contracts as reinsurance or financial instruments. By reviewing real examples of different categorization methods, this paper explains how the proposed method standardizes such categorization. It also summarizes the existing pertinent literature on the subject with the view to helping insurance regulators to first apply some simple indicators to flag the main issues with financial reinsurance contracts that may need further reviews. Having identified the suspicious reinsurance contracts, supervisors may consider several solutions provided by the authors and, in some cases, requiring further quantitative testing of risk transfer contracts for categorization purposes, supervisors may also consider adopting the Standardized Expected Reinsurer's Deficit approach to contract testing presented in this paper. The approach advocates the use of a simple standardized stochastic method that would allow market participants and regulators to perform robust quantitative tests quickly and at an affordable cost. Besides addressing the obvious drawbacks of the "10-10" test, the proposed alternative method allows a great reduction in the technical challenges posed to the users of the Expected Reinsurer's Deficit approach based on full stochastic models with only a minimum loss of predictive accuracy.en-USCC BY 3.0 IGOACCOUNTING STANDARDACCOUNTING STANDARDSACTUARIESAMOUNT OF RISKAUDITORSBALANCE SHEETBROKERAGEBULK REINSURANCECAPITAL MARKETSCAPITAL REQUIREMENTSCASH FLOWCASH FLOWSCASH INFLOWSCASUALTYCATASTROPHE BONDSCATASTROPHE LOSSCATASTROPHESCEDANTCEDANTSCEDING INSURERCEDING INSURERSCERTIFIED PUBLIC ACCOUNTANTSCOMMISSIONSCOMMODITY PRICECOVERAGECREDIT RATINGCREDITORDEGREE OF RISKDEPOSITDEPOSIT LIABILITYDEVELOPING COUNTRIESECONOMIC RISKECONOMICSEXCESS OF LOSS REINSURANCEEXCHANGE RATEFINANCIAL INSTITUTIONSFINANCIAL INSTRUMENTFINANCIAL INSTRUMENTSFINANCIAL REINSURANCEFINANCIAL REPORTINGFINANCIAL RISKFINANCIAL RISKSFOREIGN EXCHANGEFRAUDULENT TRANSACTIONSINNOVATIONSINSPECTIONSINSURANCEINSURANCE COMMISSIONERSINSURANCE COMPANYINSURANCE INDUSTRYINSURANCE POLICIESINSURANCE PREMIUMINSURANCE RISKINSURANCE SUPERVISIONINSURANCE SUPERVISORSINSURED EVENTSINSURERSINTEREST RATEINTEREST RATESINTERNATIONAL BANKINVESTMENT INCOMELEVEL OF RISKLIABILITY INSURANCELIMIT OF LIABILITYLOSS RATIOLOSS STATEMENTMARKET PARTICIPANTSMARKET PLAYERSMATURE MARKETSMATURITIESMITIGATIONMOTIVATIONNATURAL CATASTROPHEPARTICIPATIONSPORTFOLIOPORTFOLIOSPREMIUMSPROFIT SHARINGPROGRAMSPROPORTIONAL REINSURANCEQUOTA SHARE REINSURANCERATESREGULATORY AUTHORITIESREINSURANCEREINSURANCE ACCOUNTINGREINSURANCE AGREEMENTREINSURANCE COMMISSIONREINSURANCE COMPANIESREINSURANCE CONTRACTREINSURANCE CONTRACTSREINSURANCE PREMIUMSREINSURANCE TREATYREINSURERREINSURERSRELIEFRETURNSRISK EXPOSURERISK MANAGEMENTRISK TRANSFERSETTLEMENTSOLVENCYTARGET RISKTRANSACTIONTREATIESTREATY REINSURANCEUNDERWRITINGVALUATIONWorld Bank10.1596/1813-9450-6299