5. Non-life Reinsurance Market

Question 1

There are four main reasons why an insurer would want to transfer its business to a reinsurer:

• reinsurance enlarges the ceding company’s (1)… to accept risk.
• reinsurance stabilises (2)… and evens out losses.
• reinsurance reduces the ceding company’s (3)…
• reinsurance offers a way for an insurer to (4)… from underwriting at a given segment of its insurance business.

Answer 1

1. financial capacity
2. profits
3. reserve requirements
4. retire

Question 2

What does reinsurance mean?

Answer 2

It is when insurance companies take out insurance for their own business.

Question 3

Who is the cedant?

Answer 3

The person placing the risk to another person or company.

Question 4

What is treaty reinsurance?

Answer 4

A treaty arrangement where the cedant agrees to offer, and the reinsurer agrees to accept all risks of a defined class.

Question 5

Name two types of proportional reinsurance?

Answer 5

1. Quota Share Treaty

2. Surplus Treaty

Question 6

A … is an agreement whereby the cedant is bound to cede and the reinsurer is bound to accept a fixed proportion of every risk underwritten in the class of business to which the treaty relates.

Answer 6

Quota share treaty

Question 7

A … is an agreement whereby only the amount of excess of the cedant’s normal capacity for a particular risk is ceded to the reinsurers and not a fixed proportion of every risk.

Answer 7

Surplus treaty

Question 8

Advantages of quota share:

• (1)… against the reinsurer as they get a share of all accounts.
• (2)… is normally higher for the cedant.
• the reinsurer will normally make more (3)… on quota share treaty.

Answer 8

(1) no selection
(2) commission rate
(3) profit

Question 9

Disadvantages of quota share:

• The cedant has no (1)… but to cede the business rather than keeping it for its own account.
• The cedant has to keep a (2)…, not an amount of any one risk.
• The cedant can only put the risks that fall in the (3)… of the treaty in the treaty.

Answer 9

(1) choice
(2) set percentage
(3) parameters

Question 10

What is an open treaty?

Answer 10

Is when details of individual cessions gets passed on to reinsurers.

Question 11

In the surplus treaty the reinsurers retention is expressed as a …, for instance a nine line treaty or a five line treaty.

Answer 11

number of lines

Question 12

One of the most important things to remember on quota share is that the ceding office must reinsure the agreed percentage of … within the scope of the treaty.

Answer 12

every risk

Question 13

Quota share treaties are normally expressed as … arrangements.

Answer 13

percentage

Question 14

Reasons for agreeing a quota share treaty:

1. A (1)… who needs a significant amount of reinsurance protection until it has gained experience.
2. An (2)… branching into a new business field.
3. Following significant (3)…

Answer 14

(1) new insurance company
(2) existing insurer
(3) underwriting losses

Question 15

Reasons why non-proportional reinsurers are being used more commonly:

• the are (1)… to operate
• the are (2)… to purchase.
• they allow the reinsurer to charge a (3)… rather than having to take a proportion of the cedant’s orginal premium.

Answer 15

(1) simple
(2) relatively inexpensive
(3) specific rate

Question 16

Stop loss reinsurances deals with classes of insurance, whereas excess of loss deals with …

Answer 16

individual risks

Question 17

The amount kept by the cedant before excess of loss is called the (1)… The amount carried by reinsurers is sometimes called the (2)…

Answer 17

(1) priority or the deductible

(2) security

Question 18

The starting point for catastrophe cover are put in place when you have determined the … you are willing to cover.

Answer 18

maximum amount of losses

Question 19

The surplus expressed in number of lines simply suggests, if their is a nine line treaty and the insurer covers R250 000, it means the reinsurer can …

Answer 19

cover 9 times the insurer amount

Question 20

The technique used under excess of loss reinsurance is …

Answer 20

maximum amount

Question 21

Name three types of non-proportional reinsurance?

Answer 21

`1. Stop loss

2. Excess of loss
3. Catastrophe excess of loss

Question 22

Name two classes of reinsurance?

Answer 22

1. Proportional reinsurance

2. Non-proportional reinsurance

Question 23

What are the two methods used in stop loss reinsurance?

Answer 23

1. Stop loss

2. Premium based

Question 24

Treaty negotiations usually takes place around … Therefore it can be finalised by 1 January

Answer 24

August or September

Question 25

What are the advantages of layering: - reinsurers are much happier with a defined (1)... - (2)... are more likely to be able to place the cover - as the higher layers are more remote from losses then the premium for the cover will be (3)...

Answer 25

(1) range of exposure (2) cedants (3) cheaper

Question 26

What does insurers use to determine the maximum losses likely to occur?

Answer 26

1. past experience 2. changing weather patterns 3. population growth

Question 27

When the direct insurer decreases his net retention, then the reinsurers line would be based on the ... and not the normal net retention.

Answer 27

reduced retention

Question 28

With ... each risk must be negotiated with the reinsurer seperately, they can accept or decline the business.

Answer 28

facultative reinsurance

Question 29

With ... the reinsurer pays a fixed percentage of the total claims.

Answer 29

proportional reinsurance

Question 30

With ... all businesses which falls within certain parameters can be placed to the treaty without individual authorisation and the reinsurer must accept.

Answer 30

treaty reinsurance

Question 31

... is when you add the insurer amount and the reinsurer amount together.

Answer 31

Gross retention

Question 32

... technique is where the insurer is concerned with the maximum amount he wishes to pay in the event of a single risk and a single claim. When the claim exceeds this amount then the reinsurer will cover the excess.

Answer 32

Maximum amount