6. Klann.ReinsCo Flashcards
1
Q
Commutation
both parties agree on what? (3)
which party pays?
which party is buyer?
A
- agreement on valuation
- agreement on payment
- agreement to end obligations (end insurer/reinsurer relationship)
- reinsurer sells losses back to insurer
- reinsurer pays P
- primary is buyer
1) agree on fair price of P
2) Reinsurer sells losses back to P by paying Price (seller pays bc reserves are liability)
3) Reinsurer reserves (liability) go down & primary reserves (liability) go up
2
Q
List and Describe Commutation motivations (4)
A
- Solvency: P or R has concerns about others ability to stay solvent
- Exit LOB: P or R want to exit LOB or state
- Dispute: Disagreement over contract provison or claim resolution (P & R negotiate a fair price)
- Reserves: Disagreement over rsv value (both parties think commutation is good deal )
3
Q
Disclosures required by primary when commutation occurs
where to disclose
what to disclose (3)
A
where: notes to financial statements (reinsurance section)
for every commutation…
- reinsurer name
- Loss commuted during yr
- LAE commuted during yr
- EP commuted during yr
4
Q
6 functions of reinsurance
A
- increase large line capacity
- cat protection (disadv = lower income )
- stabilize loss experience
- surplus relief (reduce NWP/PHS)
- withdrawal from market (cede all prem & loss)
- UW guidance (if primary is new to LOB)
5
Q
A
6
Q
A
7
Q
A
8
Q
A
9
Q
A
10
Q
A
11
Q
A
12
Q
A
13
Q
A
14
Q
A
15
Q
A
16
Q
A
17
Q
A
18
Q
A
19
Q
A
20
Q
A
21
Q
A
22
Q
A
23
Q
A
24
Q
A
