1.3 Fundamentals of insurers

Question 1

Residual Markets

Answer 1

A private coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers. State fair plan - workers comp, auto homeowners. Last resort.

Question 2

Risk Sharing Plan

Answer 2

Insurers agree to apportion among themselves those risks that are unable to obtain insurance through normal channels.

Question 3

Reinsurance Companies

Answer 3

An insurance company that assumes all or a portion of a risk for a primary or ceding insurance company; reinsurance transfers risk among insurance companies. The insurer originating the application is the primary or ceding company. The insurer sharing in the risk is the reinsurance company. Consumer inquiries must originate with the ceding company, which then obtains reinsurance.

Question 4

Treaty Agreements

Answer 4

Types of Reinsurance

Reinsurance agreement that covers all risks contained in the subject line(s) of business automatically.

Question 5

Facultative Agreements

Answer 5

Types of Reinsurance
Reinsurance agreement that allows ceding and reinsurance companies the opportunity to negotiate coverage for individual risks.

Question 6

Financial Rating Services

Answer 6

Independent financial rating services evaluate and rate the financial stability of insurance companies. These companies assign rating codes to show financial strength or weakness of each company rated. The ratings are available to the public and producers are responsible for placing business with insurers that are financially sound.