Reinsurance

____________ Basis is drawn horizontally

Excess of loss (Non-Proportional)

Which type of reinsurance tends to not have commissions?

Facultative reinsurance

What is underwriting assistance?

Having a good relationship with a reinsurer will make it easier for a primary insurer to move into a new line or new territory

What is a syndicate?

Many people put a lot of money in the pool

_____________ Basis is drawn vertically

Pro Rata (Proportional)

If the law of large numbers is not working well, rely on the ________

Reinsurer

__________ Is much easier to predict and than frequency

Severity

What is a line?

The dollar level of retention

What is ceding coverage?

Using a reinsurance contract to shift coverage from a primary insurer to a reinsurer

What are the 2 types of facultative reinsurance?

1) Pro Rata Facultative Reinsurance 2) Excess Facultative Reinsurance

What is retrocession?

A reinsurer passing along the exposure to another reinsurer

What is a per policy excess treaty?

Applies to liability insurance with the retention and limit applying separately to each policy issued by the primary insurer

What is per risk excess treaty?

Applies to property insurance in which the retention and limit apply separately to each risk insured by the primary insurer

What is catastrophe protection?

Certain forms of reinsurance provide protection against losses from major catastrophes (earthquake, hurricanes, etc.)

What is working cover?

Per risk or per policy treaties with such low retentions that the reinsurer expects moderate to heavy loss activity

What is withdrawl from a territory or a class of business?

Reinsurance can be used by a primary insurer to withdraw from a territory or class of business

What happens in excess facultative reinsurance?

This operates just like a per risk or a per policy treaty. Reinsurer participates in all losses that are greater than the retention. Premium is negotiated by the primary insurer and the reinsurer

Which type of reinsurance usually has commissions?

Treaty reinsurance

What are the two types of pro rata reinsurance?

1) Quota Share Treaty 2) Surplus Share Treaty

What is pro Rata (Proportional) reinsurance?

And agreement whereby the primary insurer in the reinsurer agreed to share premiums, coverage, and losses in specific portions

What is excess of loss (non-proportional) reinsurance?

And agreement whereby the reinsurer assumes the portion of an exposure that is above the level retained by the primary insurer

What is a retrocessionaire?

And insurance company that acts as a reinsurer of a reinsurer

What is per occurrence excess treaty?

Indemnifies the primary insurer when the losses for an occurrence exceed the retention limit

What is reinsurance?

Insurance through which one insurer transfers to another insurer (reinsurer) some or all of the potential financial consequences of certain loss exposures

In an excess of loss reinsurance, the reinsurer participates in only....

Losses that exceed the primary insurer's retention

Do insurance companies exist without reinsurance?

No insurance company exists without reinsurance

In which facultative reinsurance are ceding commissions paid?

Pro Rata facultative reinsurance

What is surplus relief?

The ceding commissions paid by a reinsurer help offset the primary insurer's acquisition costs

What is treaty (portfolio) reinsurance?

The process of reinsuring all losses for an entire type of insurance, territory, or book of business after the primary insurer has issued the policies Loss portfolio transfer

State regulations prohibit an insurer from having a single exposure to be greater than ________ of its surplus

10%

What is any commission?

Any commission earned through ceding

How complicated does a reinsurer tree get?

As complicated as we can keep track of

Why does the primary insurer use reinsurance?

Because the primary insurer can't physically spread out exposures

What is a reinsurance intermediary?

Broker

Who is fully obligated to pay a claim?

Primary insurer

Both treaty reinsurance and facultative reinsurance can be written on a _______________ basis or on an _____________ basis

Pro Rata (Proportional) Excess of loss (Non-proportional)

What is a large-line capacity?

Refers to an insurer's ability to provide a high limit of coverage on a single loss exposure

What is treaty reinsurance?

The reinsurer agrees to underwrite an entire class of business acquired by the primary insurer

What is an aggregate excess treaty?

The reinsurer begins to pay when all the primary insurer's claims for some period of time exceed a stated retention

What are per risk and per policy treaties effective at?

1) Providing large-line capacity 2) Stabilizing loss experience

What is stabilization of loss experience?

A way to guarantee that premiums are stable and the insurance company assumes the volatility

Under SAP accounting ____________ expenses are charged immediately while ____________ is earned overtime

Acquisition Premium revenue

A treaty 60% of the premium isn't actually sent to the reinsurer because the primary insurer is....

Due a sales commission for acquiring the business

What is an example of per policy access treaty?

Lawsuits

What is an example of working cover?

Lawsuits < $500,000 are shifted to the reinsurer

What is investment risk?

The chance that an insurer's portfolio will yield a lower than expected return

What is a reinsurance limit?

The maximum amount that the reinsurer will pay for a claim. Commonly stated in the reinsurance agreement

What happens in a pro rata Surplus share treaty?

The primary insurer's retention amount is stated in dollar terms rather than percentage terms and The reinsurer's exposure is described as some multiple of the primary insurer's line

If an insurer is planning to rely on surplus to cushion bad loss experience the insurers investment must be...

1) Readily marketable 2) Not subject to wide fluctuations in value

What are the 6 functions of reinsurance?

1) Stabilization of loss experience 2) Large-line capacity 3) Surplus relief 4) Catastrophe protection 5) Underwriting assistance 6) Withdrawl from territory or class of business

How do you withdraw from a territory or class of business?

1) Stop underwriting insurance 2) Policies still out there sell to reinsurer

What are the 2 types of reinsurance?

1) Treaty reinsurance 2) Facultative reinsurance

What is facultative reinsurance?

Done on a case-by-case basis Each exposure that is assumed by the reinsurer is selected on its individual merits

What happens in a pro rata quota share treaty?

The percentage of each exposure retained by the primary insurer is fixed, while the dollar amount of each exposure varies

What is an attachment point?

The point in the excess of loss reinsurance where the reinsurer's coverage kicks in

What is retention?

The portion of a primary exposure that a primary insurer retains. Amount it does not cede to the reinsurer

What is timing risk?

The risk that losses will be paid more quickly than expected

What is finite risk reinsurance?

These contracts usually transfer very little, if any, underwriting risk. And transfers investment risk and/or timing risk

What happens in Pro Rata Facultative Reinsurance?

This operates in a manner very similar to surplus share except it covers only a single exposure