7. Underwriting Flashcards
What are the reasons why an insurer would take less than 100% of the risk?
- Capacity
- Appetite
- Aggregation
- Broker Influence
- Insureds Influence
What is the aim of electronic placing in the London Market?
Makes it easier to do Business
What software has the market developed for electronic placing?
Placing Platform Limited (PPL)
What do rating agencies look at?
- Financial Position
- Management and Operation of Business
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.
a. When the insurer’s peers in the market were also downgraded.
What document does the broker use to present a risk to an underwriter?
MRC
What does PML stand for?
Probable Maximum Loss
What is exposure modelling?
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.
What is loss modelling?
Loss Modelling is where an insurer works out the impact of certain events happening.
How does an insurer determine how much reinsurance to purchase?
Frequency and Severity of a particular event.
Who calculates the premium?
The Leader
What is premium rate?
the hazards that are being faced with a particular risk or particular insured.
What is premium base?
a measure of the exposure.
What is rate per cent?
Price per £100 insured.
What is rate per mille?
Price per £1,000 insured.
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:
£300,000
£15m/£100 =£150,000 x £2.00 = £300,000
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:
£50,000
£25m/£1,000=£25,000 x £2.00 = £50,000
What is used to calculate Employers liability insurance?
Payroll
What is used to calculate Products liability insurance?
Turnover
What is used to calculate Professional Indemnity insurance?
Rate of fees earned
What is meant by ‘open cover’?
Used in marine cargo, it is a declaration to the insurer.
What happens if the follower wants a higher rate?
The broker can accept this but they cannot go back to the lead to change the rate.
What are the other components of premium calculations?
- Operational Costs
- Reinsurance Costs
- Profit Margin
- Contribution to claims reserves
- Taxes
What is short tail business?
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
What is Long tail business?
long-tail classes (mainly liability) where the claims can take a long time to report as well as a long time to be settled.
What does IBNR stand for?
Incurred but not reported
What does IBNER stand for?
Incurred but not enough reported
What does RITC stand for?
Reinsurance to close
What is RITC for?
Reinsurance to close (RITC) is reinsuring one syndicate’s year of account into another.
What is the purpose of RITC?
RITC allows the closing year to calculate its profit or loss and report to the investors
(the Names).
Who gets involved if the Lloyds central fund is exposed during RITC?
Lloyd’s Open Years Management team
