RPLU Exam 5: Professional Liability Reinsurance

What are the key business principles of reinsurance:

1.Utmost Good Faith 2. Follow the Fortunes 3. Capacity, Reciprocity, and Sydicate

What is a reinsurance agreement between the cedant/reinsured and the reinsurer called in the following: a. Faculative Reinsurance b. Treaty Reinsurance

A. Certificate B. Treaty

Excess per risk is typically used when the reinsured purchases reinsurance protection covering what time of insurance class?

Property insurance a

To ensure Insurance companies can fulfill their financial obligations to their insureds, most states require that the maximum limit of liability for an individual policy or exposure does not exceed what percent of the insurer's policyholder's surplus? A. 15% B.10% C. 5% D. No requirement

B. 10%

What is the calculation for Surplus Ratio?

Net written premium divided by policy holders's surplus

what are the terms for "insurer's line for property insurance and for liability insurance?

Property: Risk Capacity Liability Insurance: Policy Limit

What is a mono-line treaty?

Treaty that contains a single class of insurance.

Non-proportional agreements can reimburse losses on what following bases?

1. Excess per risk/policy 2. Excess per occurrence. 3. Aggregate/stop loss bases.

What are the two types of proportional reinsurance agreements, explain each.

1. Quote share Agreement- The percentage amount is agreed on during the negotiation process 2. Surplus Share Agreement- The percentage amount is determined b y the relationship of the retained amount(specific dollar amount) to the policy limits.

What is a Proportional Reinsurance Agreement

A form of reinsurance agreement in which the insurer (cedant) and reinsurer share premiums, losses, and expenses based on proportionate percentages agreed to by both parties. Also called a Pro-Rata Agreement.

What is a Retrocessionaire

A reinsurer that assumes risk or exposure ceded or transferred by other reinsurers.

Which one of these is false: Insurer's secure reinsurance for the following reasons. A. Reinsurance increases the insurer's Utmost Good Faith B. Reinsurance Increases Capacity C. Reinsurance Stabilizes underwriting results over time. D. Reinsurance protects from catastrophic risk or exposures.

A. Utmost Good Faith

True or False: Reinsurance is banking.

False

True or False: Reinsurance is Coinsurance.

False; Coinsurance is a process through which the insured risk is distributed among two or more insurers.

This market is famous for assuming many unusual and complex industrial risk?

The London Market

Non-proportional reinsurance can be purchased to provide the reinsured with protection on what bases.

-per risk, per occurrence/per claim, or per policy basis and provides for loss recoveries above s specific retorting

What is a syndicate?

A facility established to transact reinsurance coverage among several re-insurers. It is a closed group of financial backers/members who assume liability independently not as a group. Example. Lloyds of London Syndicates.

What are three types of reinsurers in the U.S. Market

Admitted, Non, Admitted, Off-Shore

What is Retrocession

An insurance transaction in which a reinsurer transfers its own risk or exposure to another reinsurer.

Define Treaty Reinsurance Agreement

More efficient type of reinsurance agreement that covers a group, class or portfolio of insurance exposures.

What are some advantages of the Bermuda Market?

No Income Tax, Fewer Restrictions about how Bermuda Companies can invest their assets and deploy capital, & Close proximity to the U.S.

What is Reciprocity?

The exchange of reinsurance between two or more companies where these companies agree to re-insure a portion of each company's insurance obligation. (One of the Historical foundations of the insured and reinsurance relationship.)

What is an admitted reinsurer?

A reinsurance company licensed or authorized to conduct business in a particular state. The company may be located outside the U.S. (also called an "Authorized Reinsurer)

What is a multi-line reinsurance treat?

A treaty including more than one class of insurance such as D&O and E&O.

Define Facultative Reinsurance Agreement

A type of reinsurance agreement that covers individual risks or exposures.

Reinsurance is an important part of an insurer's overall risk management program to protect what?

Financial Strength

What is the syndication concept?

It recognizes that the size and potential loss amounts associated with many insurance exposures lead to financial ruin and should be spread among many insurers and reinsurers.

What are Offshore reinsurers?

Reinsurance companies that are domiciled outside the U.S. and are not governed by the U.S. insurance regulations. (Many were established on islands, hence the term)

What is Reinsurance:

Reinsurance is insurance for insurance companies or a form of financial risk transfer. it is a mechanism insurance companies use to protect their business from potential catastrophic loses.

What is a multi-line reinsurance treaty?

Treaty which includes more than one class of insurance,.

True or false: if the treaty is limited to only a single class of insurance such as professional liability for example, then it may be called a Limited reinsurance or Mono-line treaty.

True

True or false: treaty reinsurance may also be arranged to protect policies group not only by class but also by territory, exposure to loss or other classifications

True

What is a non-admitted reinsurer?

A Reinsurance company that is not licensed or authorized to conduct business in a particular state. May be U.S. based but many are located outside of the country. (Also called an unauthorized reinsuer)

What is a proportional agreement? a. When the cedant/reinsured cedes or transfers exposure and the reinsurer(s) assumes liability for an entire portfolio or book of business. b. when the premiums and losses are not shared by the insurer and reinsuer. c. when the insurer and reinsurer share premium, losses. d. when the cedant and the reinsurer cede and assume liability on an individual exposure bases.

C. When the insurer and reinsurer share premium, losses.

Which line of coverage have a great need for reinsurance? commercial or Personal Lines

Commercial Lines usually have a greater need for reinsurance than those coverage personal lines because commercial policies typically carry much larger financial obligations

Which one of these is not a misconception about reinsurance: A. Reinsurance is a partnership B. Reinsurance is a form of banking C. Reinsurance is a syndication D. Reinsurance is a form of coinsurance E. Reinsurance is a way to increase capacity

E. Reinsurance is a way to increase capacity

What is a Cedant or Ceding Company

The primary insurer that "cedes" all or a portion of risks to a reinsurer. Term typically used in a proportional Reinsurance Agreement.

Define policyholders' surplus?

The value of an insurer's equity calculated by subtracting an insurer's liability from it's assets/

True or False: Reinsurance is not a partnership

True; Reinsurance is a legal agreement between the ceding company and the reinsurer to achieve spread of risk. While reinsurers and insurers often refer to their business relationship loosely as a partnership, It is not a "Legal" partnership.