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?

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