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42 Cards in this Set
- Front
- Back
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Reinsurance is the transfer by one insurer of part of the risk insured to another insurer
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Four types of reinsurance
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1.Treat reinsurance
2.Facultative reinsurance 3.Facultative treaty 4.Finite risk reinsurance |
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Two ways that losses, premiums, and insurance are divided between the reinsurer and the primary insurer
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1.Pro rata reinsurance (proportional reinsurance)
2.Excess of loss reinsurance (nonproportional reinsurance) |
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Three types of reinsurance marketing systems
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1.Reinsurance departments of primary insurers
2.Professional reinsurers 3.Reinsurance pools, associations, and syndicates |
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Each type of reinsurance may perform one or more functions. Six functions of reinsurance
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1.Stabilization of loss experience
2.Large-line capacity 3.Financing 4.Catastrophe protection 5.Underwriting assistance 6.Withdrawal from a territory or class of business |
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Six important factors must be considered when designing a reinsurance program
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(Memory Aid: CAN SIP)
1.Catastrophic loss exposures 2.Availability of financial resources 3.Number of loss exposures covered 4.Stability of loss severity and loss frequency 5.Investment portfolio's liquidity and stability 6.Plans for growth |
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Three reasons regulation of reinsurance was traditionally limited
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1.Both parties (insurers) were considered equal in bargaining power and knowledge
2.Participants in the market were sound and ethical 3.Rigid regulation of US reinsurers could potentially limit competition with other insurers abroad |
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Current reinsurance regulation: reinsurers and primary insurers are both subject to the same solvency regulations - Contracts are regulated to protect the ceding company
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Five characteristics of the primary insurer that are concerns of the reinsurer in underwriting a treaty
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1.Management characteristics
2.Underwriting results 3.Financial condition 4.Primary insurer's underwriting policy 5.Whether other reinsurance is in place and, if so, the terms of that reinsurance |
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The heaviest burden of reinsurance administration is on the primary insurer; five duties
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(Memory Aid: DICER)
1.Design a data processing system to capture and process the information needed to fulfill administrative duties; data should be expanded as necessary 2.Inform the reinsurer of large losses 3.Conduct business as negotiated 4.Exercise good judgment in underwriting risks and adjusting claims 5.Report premiums and losses; ensuring that losses are coded properly |
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Aggregate excess of loss treaty
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A type of excess of loss reinsurance under which the reinsurer begins paying when the primary insurer's claims for a specified period of time, typically one year, exceed the retention stated in the treaty
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Bordereau
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Process of listing reinsured exposures, usually including premium and loss information; not a current practice although primary insurers must make records available for reinsurer audits
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Catastrophe excess of loss treaty
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Reinsurance designed to deal with large accumulations of losses from a single catastrophe damaging insured property
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Ceding commission
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Amount paid by the reinsurer to the primary insurer in a reinsurance agreement
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Cut-through endorsement
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An endorsement authorized by the reinsurer that modifies the original policy to provide that the reinsurer is directly responsible for the original policy if the primary insurer becomes insolvent
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Excess of loss reinsurance
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An agreement underw hich no amount of insurance is ceded; reinsurance is not involved until the primary insurer sustains a loss covered by the excess of loss agreement exceeding the retention under the contract
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Excess of loss facultative reinsurance
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Reinsurance of individual risks in which the primary insurer pays losses up to the agreed retention, and the reinsurer pays excess retrention losses up to the reinsurance limit
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Facultative reinsurance
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An agreement negotiated for each policy the primary insurer wants to reinsure; the primary insurer has no obligation to purchase reinsurance and the reinsurer has no obligation to reinsure the policies submitted
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Finite risk reinsurance
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Nontraditional reinsurance agreement covering a limited amount of risk
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Insolvency clause
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Agreement clause in which the primary insurer's insolvency does not release the reinsurer from the obligation to pay for losses
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Intermediary clause
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Agreement clause that sets up an agent of the reinsurer as the intermediary for premium collection; makes the reinsurer assume the risk of an intermediary unable or unwilling to pay premiums collected or claims paid
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Large-line capacity
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An insurer's ability to provide a high limit of insurance on a single loss exposure
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Nonadmitted alien reinsurer
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An insurer who operates in the United States but is not licensed to do business in the United States
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Per risk excess of loss treaty
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An excess of loss reinsurance agreement applying to property insurance in which a retention and limit apply separately to each risk the primary insurer covers
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Per occurence excess of loss treaty
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Reinsurance indemnifying the primary insurer when occurrence losses exceed the retention limit
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Per policy excess of loss treaty
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An excess of loss reinsurance agreement applying to liability insurance in which the retention and limit apply separately to each policy issued by the primary insurer
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Portfolio reinsurance
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Reinsuring all losses for a whole book of business, territory, or class after policy issuance by the primary insurer; avoids ill will toward policyholders and may cost less than processing and refunding premiums on canceled policies
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Primary insurer
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The "reinsured" or "ceding company" in a reinsurance agreement; the party obtaining the reinsurance from another party
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Pro rata reinsurance
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An agreement in which the losses, premiums, and insurance amount are divided between the reinsurer and primary insurer in the same proportions agreed upon by the two entities
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Pro rata facultative insurance
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Reinsurance of individual risks in which the reinsurer shares a pro rata portion of both premiums and losses of the ceding company
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Quota share treaty
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A pro rata reinsurance agreement in which the primary insurer cedes a predetermined and fixed percentage of every risk insured within a class subject to the treaty
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Reinsurance
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The transfer by one insurer of part of the risk insured to another insurer
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Reinsurance intermediary
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Serves both primary insurers and reinsurers by negotiating premiums and coverage and providing claims adjusting, underwriting, and accounting advice
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Reinsurance limit
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The most the reinsurer will pay for a claim; can be expressed as a percentage of the original insurance amount, a dollar amount, or both
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Reinsurance premium
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Amount paid by the primary insurer to the reinsurer
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Reinsurer
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The party in a reinsurance agreement accepting risk from the primary insurer
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Retrocession
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The transfer by one reinsurer of part of the risk assumed to another reinsurer
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Surplus drain
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The act of an insurer taking money from surplus to pay initial expenses because income has not yet been earned
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Surplus relief
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Using reinsurance to reduce the surplus drain resulting from a primary insurer recognizing all expenses when incurred when rapid growth in written premiums occurs
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Surplus share treaty
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A pro rata reinsurance agreement in which the reinsurer assumes responsibility on a pro rata basis for the portion fo a risk exceeding the primary insurer's established retentions
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Treaty reinsurance
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An agreement between the primary insurer and the reinsurer through which the primary insurer agrees to reinsure all policies falling within specified classes of business, and the reinsurer agrees to accept any business falling within the treaty
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Working cover
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A per policy or per risk excess treaty with retention low enough for the reinsurer to expect heavy to moderate loss activity
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