Resumen

Insurance companies transfer parts of the risk, they assume from their policyholders, to reinsurers. Underwriting reinsurance business is the process of relocating risks from an insurer to a reinsurer. A reinsurance business is considered to be in run-off, if the reinsurer discontinues to underwrite it. Various active run-off management approaches address the issue of such legacy business. The content of this paper covers the development and implementation of a specific run-off management project at the reinsurance company, Swiss Re, called the commutation initiative for small reserve value business in Latin America. In general terms, commutations are an instrument to prematurely terminate contracts. To reach a commutation agreement, the contractual counterparts negotiate a compensative payment, derived from the remaining contract value. By transferring this commutation payment, all contractual obligations are ceased and the contract reaches finality.

This paper describes the prioritization of the initiative within the Swiss Re project landscape, the definition of the project scope, the estimated impact of macroeconomic factors and the valuation technique used for the calculation of commutation offers. Based on the mentioned aspects, the paper contains reasonable expectations on the project performance and potential.

Finally the paper contains the evaluation of the initiative, discussing the reasonableness of the project targets and the adequacy of the project approach for the specific situation at Swiss Re as well as the suitability of the process structure and the performance measures. The content of this paper also includes the assessment of the project´s impact on operations, especially concerning run-off administration costs. A final judgement on the project performance cannot be rendered yet, as the project is still in progress. The indications displayed in this paper suggest, that further research and future initiatives should focus on improving the accounting system and contract structuring in order to reduce the occurrence of run-off contracts.

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Cremer, T. K. 2010. Commutation initiative for small reserve value business in Latin America. Tesis Licenciatura. International Business Administration. Departamento de Administración de Negocios Internacionales, Escuela de Negocios y Economía, Universidad de las Américas Puebla. Diciembre. Derechos Reservados © 2010.