3. Reinsurance Flashcards
Why do insurers buy reinsurance?
1 . Risk Transfer
2. Peace of Mind
3. Balancing out peaks and troughs
4. Releasing capacity
Why do firms sell reinsurance?
- Accessing business not otherwise available.
- Becoming involved in a class of business on a trial basis.
- Pure business preference
How can an insurer easily access business in another part of the world without opening an office, employing new underwriters or setting up a delegated authority
arrangement there?
a. By writing reinsurance.
b. By changing its licences.
c. By requesting permission from the local regulator.
d. By opening a Lloyd’s syndicate.
a. By writing reinsurance.
What is a ‘Full Follow Clause’?
The insurer makes all the claims decisions, it does not even have to tell the reinsurer that a claim is in progress – it just
presents the reinsurer with the bill!
What is a ‘Claims Co-operation Clause’?
This is the middle ground, where the original insurer has to advise the reinsurer of the loss and keep them advised during their handling of the claim. However, the reinsurer does not necessarily have any rights to interfere with the
insurer’s claims handling strategy and decision-making.
What is a ‘Claims Control Clause’?
This option allows the reinsurer to have full decision-making control and failure by the original insurer to allow this will, at best, delay any reinsurance recovery and at worst adversely impact its ability to recover at all under the policy.
What is Facultative Obligatory Reinsurance?
The insurer makes an agreement with a reinsurer (or group of reinsurers) that for all risks that it writes which fall within a certain pre-agreed set of criteria; the original insurer has the choice to cede that individual risk to the reinsurer(s).
In a facultative obligatory contract, on which of the parties – if any – is the
‘obligation’?
a. The insurer.
b. The reinsurer.
c. Both the insurer and the reinsurer.
d. Neither the insurer nor the reinsurer.
b. The reinsurer.
What does ‘Ground Up’ mean?
A large claim that can ‘burn through’ all its layers from zero.
In the context of reinsurance, what are ‘reinstatements’?
a. Extra layers of coverage which can be purchased for additional premium.
b. Reductions in the coverage if the premium is not paid.
c. Triggers to bring the policy layers back to life after a loss usually for the payment of additional premium.
d. Cancellation provisions.
c. Triggers to bring the policy layers back to life after a loss usually for the payment
of additional premium.
What is a Surplus treaty?
Is a reinsurance treaty in which the ceding insurer retains a fixed amount of policy liability and the reinsurer takes responsibility for what remains.
What is a Quota Share Treaty?
pro-rata reinsurance contract in which the insurer and reinsurer share premiums and losses according to a fixed percentage.
