Assignment #1 Flashcards
Why use reinsurance? (4)
1) Capacity (policy limit or premium)
2) Cat protection
3) Financial stability
4) Operational expertise (UW or claim from RI)
How to evaluate a book of business for RI need
(1) Exposure to cat risks
(2) Profitability and Growth
(3) Legal and Regulatory Compliance
Direct Reinsurance Process
(1) Insurer explains goals
(2) Reinsurer develops proposal
(3) Insurer accepts
Preagreement Documentation
Helps guide transactions until they are finalized
Provides underwriting intent, necessary info, and meets regulatory requirements w/2 key documents
(1) Broker of record letter – proof to RI that broker can act on behalf of cedent
(2) Premium and loss account
Preagreement documentation can be used to settle disputes but is superceded by final documentation
9-month rule
NAIC requires RI agreements be signed no later than 9 months after inception
Contract certainty
Concept requiring that complete and final agreement on all terms is required from both parties by the time of inception
Steps for Direct Fac (7)
(1) Proposal
(2) Clearance and underwriting
(3) Authorization
(4) Confirmation
(5) Reinsurance binder (serves as evidence of fac until fac reinsurance certificate is issued)
(6) Policy Documentation
(7) Facultative Reinsurance Certificate – final legal contract
Facultative Reinsurance Certificate includes
Coverage and premium provisions on the front
Operating provisions on the back
Pro rata certificate will have fac limit / cession and retention
XOL certificate states limit as $ xs retention
Overlining
When RI provides more limit / coverage to a single risk than they intend to… clearance process helps prevent this
Price fac risks based on
Exposure rating
Casualty fac UW use what tools
Increased limit factor tables (like from ISO)
Property fac UW use
(1) Hazard characteristics
(2) Lloyd’s property first loss scale (for allocating prem across layers)
(3) ISO’s PSOLD – property size of loss database – also for pricing layers
