The use and abuse of reinsurance in medical schemes

An investigation by the regulatory authorities into the use of reinsurance by medical schemes indicated clear problems with reinsurance agreements and cases where the contracts were resulting in substantial losses for members of schemes. It was shown that a number of cases reinsurance had become a conduit for systematically removing surplus from medical schemes. Thus undermining the security of members of those schemes. This paper summarises the key features of the investigation into the use of reinsurance by medical schemes over the period 1996 to 1999. The paper then outlines the actions taken by the regulatory authorities. The specific areas of abuse are described and the conduct of trustees, brokers, administrators and insurance companies is discussed. This leads to the question of the professional responsibilities of actuaries in the design and implementation of these arrangements. KEYWORDS: Medical schemes; reinsurance; regulation; professionalism, trustee responsibility South African Actuarial Journal: 2001 1: 95-118