CPCU 520 Ch 8
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.
