►Underwriting risk requires that the business ceded under a reinsurance contract be subject to some degree of variability with respect to the amount of underwriting results (i.e. claim amounts must be inherently variable).
►Underwriting risk is defined as the uncertainty at the inception of the contract of the ultimate amount of cash flow from premiums, commissions, claims and claim settlement expenses.
►The amount of a reinsurer’s payments should depend on and directly vary with the amount of claims settled