Finite Risk Insurance

Finite risk insurance is the term applied within the insurance industry to describe an alternative risk transfer product that is typically a multi-year insurance contract where the insurer bears limited underwriting, credit, investment and timing risk. The assessment of risk is often conservative. The insurer and the insured share in the net profit of the transaction, including loss experience and investment income. The premium is generally well in excess of the present value of a conservative estimate of loss experience. The policy generally contains retrospective rating provisions such as

• Commutation provisions,
• Additional premium provisions, or
• An experience sccount

Finite risk insurance excludes products expressly sold as annuities.

The term "blended finite risk insurance" is often used to describe an insurance product that has the characteristics of finite risk, but with more risk transfer included than generally is the case for finite risk. While there is no brightline test for risk transfer, the distinction would be most readily noted in the premium for blended finite risk insurance, which must be less than the present value of a conseravtive estimate of loss experience by a readily noticeable degree.