CPCU 520 Ch 8

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Catastrophe Option

Contingent capital Agreement. Allows primary insurer to cash a payment if a catastrophe reaches strike price

Contingent Surplus Note

Contingent capital Agreement. Can issue surplus notes (that will be accounted as assets) at pre-agreed rate of interest if need be.

Catastrophe Risk Exchange

Contingent capital Agreement. Exchange a portion of insurance risk for another insurer's

Side Car

Contingent capital Agreement. Formed as independent company investors assume portion of risk and earn corresponding portion of profit. Primary insurer charges a ceding commission and may receive profit if the book of business is profitable.

Industry Loss Warranty

Contingent capital Agreement. Insurance linked security for industry wide events

Two types of pro rate insurance

Quota Share or Surplus Share

Intermediaries and Reinsurance Underwriters Association (IRU)

Composed of intermediaries and reinsurers that broker or assume non life treaty reinsurer. Conferences, develop the journal of reinsurance

Contract wording reference book

created by BRMA. Benchmark for treaty reinsurance contracts.

Retrocession

the reinsurer (retrocedent) transfers or cedes some or all its risk to another reinsurer (retrocessionaire)

Per occurrence excess of loss reinsurance.

typically for liability attachment point linked to single event. Will generally have attachment point less than highest liability policy limit.

Clash cover

when claims from two or more policies arise from the same occurrence

Portfolio Reinsurer

how an insurance company uses reinsurance to withdraw from market. Reinsurer accepts all of the liability for certain loss exposures, but primary must fulfill obligation to insureds and have reinsurer indemnify

Reinsurance Function: Increase large line capacity

increase market share while limiting risk.

Professional reinsurer. Two types

insurer whose primary business is reinsurance. Evaluate primary insurer before writing. Direct writing reinsurer or uses Reinsurance intermediaries

Insurer structure and reinsurance

insurers with more access to capital markets (stock insurers) may not need as stable loss ratios as mutual or reciprocal insurers. They may also need more reinsurance as there is more market fluctuations

Association Reinsurer

organization of member companies that reinsurer that issue policies and reinsurer multiple policies together

Surplus relief

replenishment of policyholder's surplus provided by ceding comission

Co-participation provision

requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point.

Surplus Share

share pro rata policies that losses fall over a certain line. Share the entire policy not just past the line.

Clash coverage limits

should be set considering potential for excess of policy limit losses and policy limits offered by primary insurer. Shouldn't consider catastrophe excess of loss reinsurance. Not concern for property thats not catastrophe

4 FACTORS THAT AFFECT REINSURANCE RETENTION SELECTION

1) Amount primary insurer can retain from financial strength or regulatory 2) Maximum amount primary insurer wants to retain 3) Maximum retention sought by reinsurer 4) Co-participation provision

Commercial property policies in florida should consider

1) Extra contractual obligatoins exposure 2) Excess of policy limits exposure D) Catastrophe exposure

7 FACTORS THAT DETERMINE REINSURANCE NEEDS

1) Growth plans 2) Types of insurance sold 3) Geographic spread of loss exposures 4) Insurer size 5) Insurer structure 6) Insurer Financial Strength 7) Senior Management Risk Tolerance

5 FACTORS AFFECTING REINSURANCE LIMIT SELECTION

1) Maximum primary policy limit 2) Extra contractual obligations 3) Loss adjustment expenses 4) Clas cover 5) Catastrophe exposure

5 TYPES OF EXCESS OF LOSS REINSURANCE

1) Per Risk 2) Catastrophe 3) Per Policy 4) Per Occurrence 5) Aggregate

Treaty and Facultative Reinsurance can either be (2)

1) Pro Rate 2) Excess of Loss

3 TYPES OF REINSURERS

1) Professional Reinsurer 2) Reinsurance Departments of Primary Insurers 3) Reinsurance Pools, syndicates and associations

6 PRIMARY REINSURANCE FUNCTION

1) Stabilize loss experience 2) Provide catastrophic protection 3) Provide underwriting guidance 4) Increase large-line capacity 5) Provide surplus relief 6) Facilitate withdrawal from a market segment

Qouta Share Reinsurance

A type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a fixed percentage.

National Oceanic and Atmospheric Administration (NOAA)

Can provide catastrophe data

Maximum amount of risk an insurer can take

Cannot retain after reinsurance more than 10% of policyholder's surplus

Journal of Reinsurance

Developed by intermediaries and reinsurance underwriters association (IRU). Discusses concepts and ad research for reinsurance.

Three types of Ceding Comissions

Flat commission, profit sharing commission, sliding scale commission

Special Purpose Vehicles

Non traditional reinsurance method. A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them, and then using those assets to collateralize securities that will be sold to investors. Allows to exchange assets for cash.

Contingent capital Agreement

Non traditional reinsurance method. An agreement, entered into before any losses occur, that enables an organization to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold.

Insurance Derivitives

Non traditional reinsurance method. Financial contract whose value is based on the level of insurable losses that occur during a specific time period.

Securitization of Risk

Non traditional reinsurance method. Use of securities or financial instruments (for example, stocks, bonds, commodities, financial futures) to finance an insurer's exposure to catastrophic loss. Allows to exchange assets for cash.

Facultative Reinsurance

Nonobligatory reinsurance. Single/large line reinsurance. More expensive and more work.

Reinsurance Association of America RAA

Not for profi american trade association of all professional reinsurers and brokers. Member advocacy, lobbying, aggregate data

Treaty Reinsurance

Obligatory reinsurance. Entire class or portfolio. If they allowed primary insurers to chose which losses they would be open to adverse selection. Enables to consistently fufill producers requests

Profit Share Comission

Pro Rata ceding commission hat is contingent on reinsurer realizing a profit. Encourages better risks

Flat Comission

Pro Rata ceding commission that is a fixed % of ceded premiums

Sliding Scale Comission

Pro rata ceding commission based on formula that adjusts the commission according to the profitability of the reinsurance agreement

Which type of reinsurance is effective for new insurers

Pro rata, gives them building capital

Insurance-linked security

Type of insurance derivative. A financial instrument whose value is primarily driven by insurance and/or reinsurance loss events.

Brokers and Reinsurance Market Association (BRMA)

US treaty reinsurance gained by brokers. Identify and address wide operational issues. Create contract wording reference book

Finite Risk Agreement

Transfers limits amount of risk to reinsurer, primary insurer rely's on long term coverage. Includes investment income. Multi-year agreement. Premium can be up to 70% of limit. High severity Losses and catastrophe losses

Catastrophe Bond

Type of Contingent capital Agreement. Transfers catastrophe risk to investors

Novation

agreement under which one insurer or reinsurer is substituted for another. Often needs regulatory approval

Policyholders surplus and capacity

as policyholders surplus ratio decreases, capacity increases

Quota Share limit

at which point responsibility reverts back to primary insurer. May be per occurence

Reinsurance trade associations

can sell reinsurance

Reinsurance intermediary benefits

can usually help secure high coverage limits for catastrophe coverage, have access to various reinsurance solutions and can obtain competitive prices

Policyholders surplus limit

cannot be larger than 3 to 1 (gross premiums to policyholders surplus)

Syndicate Reinsurer

each member shares the risk by accepting a percentage. Each individual is an investor of the name (Lloyds)

Working Cover

excess of loss reinsurance with los attachment point. For volume of losses that are significant or when starting out.

Reinsurance pool

group of unrelated insurers or reinsurers that ave joined to insure risks that cannot insurer on their own

Reinsurance limit for surplus share

multiples of primary insurers line. If line is 300K and multiple is 9, can right 9x300K past 300K line, or 3M

Excess of Loss reinsurance

non proportional reinsurance responds to losses exceeding the attachment point. Layers of reinsurance

Excess of Loss fee

pay reinsurer percentage of subject premium. Do not pay ceding commissions though may reward for profitable business

Ceding comission

pays primary insurer to cover some expenses

Subject premium

premium charged by primary reinsurance

Strike Price

price at which the stock or commodity can be sold

Per policy excess of loss reinsurance.

primarily with liability, applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each policy.

Per Risk excess of loss reinsurance.

primarily with property, covers property insurance and that applies separately to each loss occurring to each risk.

Variable Quota Share

primary insurer retains larger proportion of small loss exposures

Aggregate excess of loss reinsurance.

property or liability, aggregates losses that exceed attachment point. Can be loss ratio or dollar amount. Most also contain co-participation provision

Pro Rate Insurance

proportional reinsurance. Type that provides surplus relief

Catastrophe excess of loss reinsurance.

protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event.


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