7. Underwriting

Question 1

What are the reasons why an insurer would take less than 100% of the risk?

Answer 1

• Capacity
• Appetite
• Aggregation
• Broker Influence
• Insureds Influence

Question 2

What is the aim of electronic placing in the London Market?

Answer 2

Makes it easier to do Business

Question 3

What software has the market developed for electronic placing?

Answer 3

Placing Platform Limited (PPL)

Question 4

What do rating agencies look at?

Answer 4

• Financial Position
• Management and Operation of Business

Question 5

When would a reduction in rating from a rating agency be least likely to cause any business issues for an insurer?
a. When the insurer’s peers in the market were also downgraded.
b. When the insurer was not in the London Market.
c. When the insurer is a new start-up business.
d. When the insurer writes only aviation business.

Answer 5

a. When the insurer’s peers in the market were also downgraded.

Question 6

What document does the broker use to present a risk to an underwriter?

Answer 6

MRC

Question 7

What does PML stand for?

Answer 7

Probable Maximum Loss

Question 8

What is exposure modelling?

Answer 8

Exposure modelling looks at the way in which different risks that an insurer writes (or is planning to write) combine to create a concentration of risk in one area.

Question 9

What is loss modelling?

Answer 9

Loss Modelling is where an insurer works out the impact of certain events happening.

Question 10

How does an insurer determine how much reinsurance to purchase?

Answer 10

Frequency and Severity of a particular event.

Question 11

Who calculates the premium?

Answer 11

The Leader

Question 12

What is premium rate?

Answer 12

the hazards that are being faced with a particular risk or particular insured.

Question 13

What is premium base?

Answer 13

a measure of the exposure.

Question 14

What is rate per cent?

Answer 14

Price per £100 insured.

Question 15

What is rate per mille?

Answer 15

Price per £1,000 insured.

Question 16

A vessel is valued at £15m. If the insurer wants to charge £2.00 per £100 of cover (2%)
then the premium calculation would be:

Answer 16

£300,000
£15m/£100 =£150,000 x £2.00 = £300,000

Question 17

A vessel is valued at £25m. If the insurer wants to charge £2.00 per £1,000 of cover (2%)
then the premium calculation would be:

Answer 17

£50,000
£25m/£1,000=£25,000 x £2.00 = £50,000

Question 18

What is used to calculate Employers liability insurance?

Answer 18

Payroll

Question 19

What is used to calculate Products liability insurance?

Answer 19

Turnover

Question 20

What is used to calculate Professional Indemnity insurance?

Answer 20

Rate of fees earned

Question 21

What is meant by ‘open cover’?

Answer 21

Used in marine cargo, it is a declaration to the insurer.

Question 22

What happens if the follower wants a higher rate?

Answer 22

The broker can accept this but they cannot go back to the lead to change the rate.

Question 23

What are the other components of premium calculations?

Answer 23

1. Operational Costs
2. Reinsurance Costs
3. Profit Margin
4. Contribution to claims reserves
5. Taxes

Question 24

What is short tail business?

Answer 24

Certain classes of business are called short-tail because the claims are generally reported
and settled either within the policy year or very shortly afterwards

Question 25

What is Long tail business?

Answer 25

long-tail classes (mainly liability) where the claims can take a long time to report as well as a long time to be settled.

Question 26

What does IBNR stand for?

Answer 26

Incurred but not reported

Question 27

What does IBNER stand for?

Answer 27

Incurred but not enough reported

Question 28

What does RITC stand for?

Answer 28

Reinsurance to close

Question 29

What is RITC for?

Answer 29

Reinsurance to close (RITC) is reinsuring one syndicate’s year of account into another.

Question 30

What is the purpose of RITC?

Answer 30

RITC allows the closing year to calculate its profit or loss and report to the investors
(the Names).

Question 31

Who gets involved if the Lloyds central fund is exposed during RITC?

Answer 31

Lloyd’s Open Years Management team