Reinsurance

If there was an excess of loss reinsurance contract that was 700 x 300 and there was a $1.2M loss, how much would the reinsurer pay?

$700,000

Insurers like to keep limits under ______% of their surplus.

10

What is Stop Loss?

A ratio that states the reinsurer will cover all losses once the carrier hits a certain loss ratio

Aggregate Excess is when ....

A reinsurer agrees to pay for any losses once the carrier reaches a certain amount of total loss

If there was a policy that was written at a $150,000 premium and the cedent and reinsurer agreed to an 80% quota share and the ceding commission is 30%: A. How much premium would the reinsurer get? B. How much premium would the cedent get? C. How much would the ceding commission be? ($ wise) D. How much would the cedent net?

A. $120,000 B. $30,000 C. (.3 x 120,000) = $36,000 D. (.2 x 150,000) - (.3 x 150,000) + (.3 x 120,000) = 21,000 (cedent's premium) - (ceding commission% x total premium) + (ceding commission% x R/I premium)

What are the 2 major models for hurricane loss measurements?

AIR and RMS

What is the 6th function of reinsurance that Dr. Berry talked about?

Advice from a reinsurer to aid in U/W on new books of business

When is the agreement made for treaty reinsurance?

Ahead of time/before the policies are written

Why is it dangerous to continuously retrocede a risk?

Because the reinsurer knows less and less about the risk each time it is reinsured.

How does reinsurance aid in increasing premium capacity?

Because through pro rata reinsurance, the cedent is able to get rid of a percentage of its premium thus giving it more capacity to write more premium.

Primary insurer is also known as the ________ who writes the insurance policy and transfers risks to a reinsurer.

Cedent

Surplus Relief is the same as _____________________.

Ceding Commission

What is negotiated in Pro Rata and what is negotiated in excess of loss?

Ceding Commission - pro rata Reinsurance premium - excess

What determines the price of pro rata reinsurance?

Ceding commission

Reinsurers use loss costs to...

Determine adequate premiums to charge the cedent. This is based on historical data from the previous reinsurance contract.

Reinsurers who don't use intermediaries are known as ___________________________ or ________________________.

Direct writers or Direct Marketers

Reinsurance is often used to ___________ risks.

Diversify

What 3 ways can a treaty reinsurance policy be written?

Enforce Only New & Renewal Only Enforce, New & Renewal.

What is the most comprehensive type of treaty reinsurance?

Enforce, New & Renewal treaty reinsurance

Stabilization is most effectively done through __________ & ____________.

Excess per risk and excess casualty

What are the four big categories of reinsurance?

Facultative & pro rata Facultative & excess of loss Treaty & pro rata Treaty & excess of loss

What are the 5 functions of reinsurance?

Financial Statement Adjustment Individual risk capacity Premium Capacity Cat Protection Stabilization

What are the 5 general characteristics of reinsurance contracts?

Follows the Fortunes Honorable Undertaking Privity of Contract Contract of Indemnity Arbitration not litigation

What does "700 x 300" mean?

For every loss above $300,000 the reinsurer will pay up to $700,000. For every loss under $300,000, the cedent pays for the loss.

Claims are handled through the ____________ in the traditional role of reinsurance.

Intermediary

What is excess of loss reinsurance?

Like a deductible. The ceding company is paid for that amount of loss above a specified retention. Reinsurer does NOT get involved until the loss exceeds the retention.

In a Quota Share agreement, the reinsurer is responsible for his percentage of _________ & _____________.

Losses and Loss Adjustment Expenses.

Excess casualty responds on a _____________________ basis.

Per accident

Excess per Risk responds on a _____________________ basis.

Per risk

If the reinsurer agreed to a 65% quota share, the reinsurer would cover 65% of the liability but also get 65% of the __________.

Premium

What is the difference between Quota Share and Surplus Shares?

Quota share is simpler and is a flat % of what the reinsurer will assume that never changes. Surplus Share is only on treaty R/I and is done in bundles. The % the reinsurer will assume will change based on the size of the risk. This is done because the cedent is not comfortable keeping a large % of a large risk.

What is treaty reinsurance?

Reinsurance of many risks by contractual, obligatory agreement.

What is pro rata reinsurance?

Similar to a co-pay. The reinsurer shares a pre-determined proportion of the ceding company's liability, premiums, and subject losses under the reinsured business.

If you have a portfolio of insured buildings all under $1M, but then renovations are done on one building bringing the cost of the building up to $5M. What would you do to get reinsurance for this building?

Submit 1 facultative agreement to the R/I underwriter and they will either accept or reject the contract.

What does the obligatory agreement mean for the reinsurer?

That the reinsurer is obligated to insure every exposure in that book of business as long as it falls within the R/I guidelines.

What is "enforce, new & renewal" treaty reinsurance?

The reinsurer agrees to underwrite all previously written and new/renewal policies.

Why is "new & renewal" treaty reinsurance more risky for the reinsurer?

The reinsurer has complete uncertainty about what types of risks the cedent will insurer going forward

What is the benefit of "enforce only" treaty reinsurance for the reinsurer?

The reinsurer is able to see the loss runs & data on the policies before underwriting them.

What is "enforce only" treaty reinsurance?

The reinsurer will only underwrite everything previously written by the cedent.

What is "New & Renewal" treaty reinsurance?

The reinsurer would underwrite every policy written by the cedent GOING FORWARD.

How is the financial statement adjustment done?

Through Ceding Commissions

What is an Rate on line?

When the reinsurer's premium is expressed as a percentage.

In CAT protection _______ reinsurance is most effective because...

XPR because it stops a large CAT loss from causing a company to deplete its surplus or go insolvent because the R/I now takes on a large chunk of that loss.

A retrocessionaire is...

a company who reinsurers reinsurance.

A retrocession is....

a transfer of reinsurance risk

What is the definition of reinsurance?

a type of "insurance" purchased by insurance companies to transfer a portion of the risk they assume when they write insurance policies.

The rate on line goes ___________ as you move into higher layers.

down

Excess CAT responds on a ____________________ basis.

per event

When insurers bundle risks together in a book of business this commoditizes a risk. Sometimes this becomes too risky so insurers purchase _____________ to diversify risks.

reinsurance

What is facultative reinsurance?

reinsurance of individual risks by individual offer & acceptance.

Reinsurer is also known as _________ which is the party who assumes risk

the market

A cession is....

the transfer of insurance risks to reinsurer

What are the two types of reinsurance transactions?

through intermediaries and directly to the market

To cede means...

to transfer insurance risks

The first layer of the reinsurance program is called the

working layer