functions of reinsurance
volatile loss experience can
- affect insurer's rating - affect stock values - reduce sales confidence - undermine mgmt - lead to insolvency
line is influenced by...
- insurance regulations - size of losses to safely retain - characteristics of loss exposure - availability/cost of reinsurance
reinsurance stabilizes loss exposure by limiting the insurer's liability for...
- single loss exposure - several exposures from one event - loss exposures that aggregate over time
functions of reinsurance: insurer reinsurers to gain...
1. large line capacity 2. catastrophic protection 3. stabilize loss experience 4. surplus relief 5. withdraw from territories/businesses 6. UW guidance
a primary insurer who wants to withdraw from a market can:
1. stop selling policy and continue with their current one until it expires 2. cancel all policies, refund unearned premiums 3. buy portfolio insurance
why do insurers experiencing excessive growth have trouble with meeting policyholders' surplus requirements?
b/c they need to know acquisition expenses when policy is sold but they can only see the premium expenses when the policy is sold
what are some examples of catastrophic protection
earthquake, hurricane, tornado, fire
what is novation
insurer/reinsure substituted for another
what is an insurer's ability to provide larger amounts of insurance for property exposures, or higher limit for liability exposures
large line capacity
what is a maximum amount of insurance or limit of liability insurer will accept on a single exposure
line
what is the policyholders surplus
net worth of company
what is an agreement which one insurer/reinsurer substituted for another
novation
reinsurance that transfers to the reinsurer liability for an entire type of reinsurance territory, or book of business after primary issued policies
portfolio reinsurance
what are net written premiums
premiums charged to policyholders - premium paid to reinsurer + reinsurance premium
what is the capacity ratio; what is the ratio is should not exceed?
ratio of net written premiums to policyholders' surplus; should not exceed 3 to 1
what function of reinsurance allows insurers to keep loss ratios within closer tolerances?
stabilize loss experience
what is the replenishment of policyholders' surplus provided by the ceding commission paid by to primary from reinsurer?
surplus relief
primary insurers withdraw from what kind of markets
undesirable, unprofitable, no longer fit their strategic plan
which function of reinsurance is used when entering a new line of business?
uw expertise