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Reinsurance - How PI Can Eliminate Risk and Lock In Profits

$PI$ cannot adequately compensate smaller, less efficient insurers (risk assuming health care providers), but $PI$ can lock in profits and eliminate risk by passing its Claims Costs to more efficient insurers, $NHI$ and $B$. If $B$ assumes all $PI$'s policyholders' Claims Costs, $\sigma_{e_{B}}$ drops from $\sigma_{e_{10,000,000}}$ = 0.015811, to $\sigma_{e_{11,000,000}}$ = 0.015076. $NHI$'s $\sigma_{e_{308,000,000}}$ = 0.002849 drops to $\sigma_{e_{309,000,000}}$ = 0.002844. $NHI$ and $B$ become larger, more efficient insurers by accepting $PI$'s risks, and can accept less than 85% of $PI$'s Earned Premiums, eliminate $PI$'s risk, and match, even exceed, $PI$'s pre-transfer probabilities of earning profits of at least 5%; or avoiding operating losses, on their entire portfolios.


Thomas Cox PhD RN 2013-02-23