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ALU 202 > Ch 9 Fundamentals of Life Reinsurance > Flashcards

Ch 9 Fundamentals of Life Reinsurance Flashcards

1
Q

transfer of risk concept

A
  1. death benefit offsets any financial loss incurred by bene due to death of insured
  2. payments made to policy help stabilize the financial obligations of policy owner
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2
Q

reinsurance

A

transfer of part of the hazards or risks that a direct insurer assumes by way of insurance contract or legal provision on behalf of an insured to a second insurance carrier, the reinsurer, who has no direct contractual relationship w/ the insured

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3
Q

purpose of reinsurance

A

-minimize adverse financial impact of claims on direct insurer, protection against loss

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4
Q

indemnity arrangements

A
  1. no contractual relationship between insured and reinsurer
  2. direct carrier always responsible for financial obligation
  3. reinsurance arrangement separate from contract
  4. reinsurer obligation to pay determined by terms of reinsurance cession and reinsurance treaty
  5. direct carrier always obligated to pay legitimate claim
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5
Q

ceded risk

A

risk transferred to reinsurer by a direct writing company or to a retrocessionaire by a reinsurer

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6
Q

assumed risk

A

acceptance of a cession by a reinsurer or a retrocession by a retrocessionaire

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7
Q

ceding company

A

company that transfers the risk to a reinsurer

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8
Q

cession

A

document or electronic transmittal that describes risk transferred

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9
Q

reinsurance treaty

A

written contract defining the reinsurance agreement. defines relationship between ceding company and the reinsurer including specific risk definition, data on limits and retention and provisions for premium payment and duration

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10
Q

retention limit

A

specified max amount of insurance that a life insurer is willing to carry at its own risk on any one life w/o transferring some of the risk to another insurance company

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11
Q

retrocessionaire

A

reinsurer that contractually accepts from another reinsurer a portion of the ceding company’s underlying reinsurance risk

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12
Q

retrocession

A

risk ceded by a reinsurer

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13
Q

Benefits of Reinsurance

A
  1. Capacity
  2. Prevention of catastrophic loss
  3. Market Entrance
  4. Market Withdrawal
  5. Reinsurance Services
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14
Q

Capacity

A

allows direct carriers to write larger amounts than normally possible
-limits varied by: selected criteria such as age, UW classifications, plan type

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15
Q

reinsurance pool

A

method of allocating reinsurance among several reinsurers. Each receives specified percentage of each risk ceded to pool.

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16
Q

Market entrance

A
  1. direct writing company may not have necessary expertise. benefit from reinsurer experience
  2. mortality block may not be as expected until large # of policies issue
  3. each claim has higher financial impact when only a few policies are in force
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17
Q

law of large numbers

A

the greater the number of occurrences that take place (a) the more accurate the prediction of future results (b) the less the deviation of the actual losses from the expected losses (c) the more reliable the prediction will be

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18
Q

assumption reinsurance

A

agreement which one company permanently transfers full responsibility for a block of policies to another company

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19
Q

reserves

A

liabilities for amounts an insurance company is obligated to pay in accordance w/ an insurance policy or annuity contract

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20
Q

financial reinsurance

A

primarily to achieve financial goals, provides temporary infusion of capital from reinsurer to fulfill reserve requirements, also covers non-mortality risks of:
-policy persistency
-interest
-cash values
-reserve requirements
-secondary guarantees
-return of premium

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21
Q

Types of Risk Transfer

A

MRT - excess of retention
YRT - quota share
Coinsurance - quota share

22
Q

YRT - yearly renewable term - excess of retention

A

the risks, but not the permanent plan reserves, are transferred to the reinsurer for a premium that varies each year w/ the amount at risk and the ages of the insured
-premiums paid based on age, gender, duration of contract
-retain amounts up to retention limit

23
Q

YRT - yearly renewable term - quota share

A

premiums and losses are shared proportionately between ceding company and reinsurer
-allows for use before retention is exhausted
-retain fixed % of risk, cede remaining

24
Q

first dollar reinsurance

A

retain fixed percentage of every dollar of insurance coverage issued and cede the balance to reinsurer
- once retention reached, addl coverage can be auto ceded w/in constraints of autobind and jumbo limits if treaty stipulates

25
Q

coinsurance - quota share

A

assuming company receives a proportionate share of all risks and cash flows of policy
-reinsurer must set up admin services that mirror and integrate w/ ceding company
-useful if ceding company is small and needs large amt of support

26
Q

Facultative Reinsurance

A

risk is offered by a direct writer to a reinsurer for UW approval
-used when total death benefit in force and applied for might exceed limit of reinsurer’s UW capacity as defined in treaty
-also used when direct carrier seeking alternative UW eval or does not wish to retain risk
used when:
1. case does not qualify for auto
2. cannot place offer & seeks another offer
3. does not want to keep normal retention

27
Q

facultative shopping

A

act of submitting an underwriting case to several reinsurers in order to obtain most competitive offer
-auto not available on that life for at least several years after fac consideration

28
Q

Automatic Reinsurance

A

ceding company is obligated to cede, and the reinsurer is obligated to assume, risks that meet specific criteria based on provisions of the treaty & ceding company’s UW guidelines

29
Q

excess of retention

A

ceding company establishes a dollar amount retention limit and reinsurer agrees to assume amounts over this limit, up to reinsurer’s automatic binding limit

30
Q

binding

A

act of securing auto reinsurance

31
Q

automatic binding limit

A

dollar amount of risk on a single or joint life to which a reinsurer is willing to obligate itself w/o making its own UW assessment

32
Q

legal clauses for auto

A
  1. ceding company will keep regular published retention or hold its full retention on life under previously issued in force policies
  2. ceding company will apply its normal UW guidelines
  3. total of new and amt already reinsured will not exceed auto binding limit
  4. amt of INSIF w/ all companies, including amt to be replaced, plus amt currently applied for will not exceed jumbo limit
  5. app must be on life that has not been submitted fac w/in # yrs agreed upon by ceding company and reinsurer.
33
Q

Jumbo Limit

A

limit placed on amt of coverage that can be inforce and applied for on individual life for auto reinsurance purposes. If exceeds limit, must be fac
1. amt IF and applied for w/ all companies on individual
2. amt IF and to be placed w/ all companies
3. amt IF and applied for w/ all companies but excluding controlled replacements

34
Q

automatic pool

A

multiple reinsurers part of arrangement
ceded cases based on percentage share of pool

35
Q

alphabetical split

A

allocating auto among several reinsurers using first letter of insured’s last name

36
Q

Facultative Obligatory Reinsurance

A

hybrid between fac and auto. Risk to be ceded submitted to reinsurer
-submit limited info about risk to reinsurer instead of full UW file
-limited right to decline

37
Q

catastrophe reinsurance

A

provides coverage for losses resulting from an accident or natural disaster involving more than one insured. Losses typically must exceed specified amount & # of insureds and/or locations
-does not cover deaths due to war or natural causes
-covers block of business, not individual

38
Q

reinsurance treaty

A

agreement that details the obligations and responsibilities of the direct carrier and reinsurer

39
Q

provisions of reinsurance treaty

A
  1. parties to agreement
  2. automatic reinsurance: conditions employed, how ceding company manages retention
  3. facultative reinsurance: conditions employed, clauses
  4. commencement of liability
  5. reinsured risk amount
  6. reductions, terminations, changes
  7. conversions, exchanges, replacements
  8. errors and omissions
  9. dispute resolution
  10. arbitration
  11. forms, manuals and issue rules
40
Q

parties to agreement

A

defines who is participant, insured is not included

41
Q

commencement of liability

A

addresses reinsurer’s liability for a claim and at which point that liability begins
auto: same time as ceding company
fac: same time as ceding company, provided valid offer was made and accepted

42
Q

reinsured risk amount

A

covered by treaty and defines addl policy benefits reinsurer is responsible for outside basic death benefits

43
Q

reductions, terminations, changes

A

policy increases, risk class changes and reinstatements underwritten in accordance w/ customary standards and procedures employed by ceding company. exception is fac reinsured, changes go to reinsurer

44
Q

conversions, exchanges, replacements

A

auto business will be underwritten by ceding company

45
Q

claims

A
  1. copies of proofs shared w/ reinsurer
  2. contestable claims require reinsurer to submit notification to support participation in action by ceding company
  3. misrepresentation or suicide, reinsurer will refund net reinsurance premiums to ceding company
  4. extra contractual damages reinsurer will not participate in punitive or compensatory damages but will participate in statutory penalties
46
Q

errors and omissions

A

if unintentional and non-repetitive and not result of negligence or deliberate act. correct promptly if can be corrected

47
Q

dispute resolution

A

procedure for disagreements that cannot be settled, negotiation required in good faith and complete disclosure

48
Q

arbitration

A

binding arbitration, base decision on terms and conditions of treaty and on customs and practices of life and reinsurance industries, decision is final, no appeal

49
Q

forms, manuals, issue rules

A

copies of UW procedures, forms, guidelines and UW manuals and info about special UW programs. must have thorough knowledge of products and plans being underwritten

50
Q

Key factors of reinsurance pricing

A
  1. product: analysis of product and assumptions
  2. market: nature of market influences and risk
  3. distribution system
  4. underwriting: must have confidence and knowledge of UW dept, review of manuals, procedures, personnel, training, experience, reinsurers manuals, guidelines, training programs, results of audits and compliance w/ internal procedures
51
Q

reinsurance underwriting audits

A

significant value on ceding company’s internal audit results and reinsurer’s audit of ceding company files
-ensure compliance w/ treaty
areas of review
1. treatment of conditional receipt
2. compliance w/ required forms/notices
3. adherence to published UW rules/procedures
4. acquisition of age/amount & appropriate addl UW requirements
5. file documentation and use of case referrals
6. timeliness
7. clarity of communication w/ field
8. eligibility of case for auto reinsurance and adherence to retention, jumbo and autobind limits
9. final assessment to include use of exceptions, concessions and business exceptions

52
Q

reinsurance marketplace

A

recurring business has dropped due to:
-mergers/acquisitions
-companies leaving market
-new entrants
-consolidation of reinsurance capacity has leveled off
-increasing pressures by shareholders for higher profits and greater return on investment
-direct carriers increasing internal retention limits
concerns for industry
-providing excess capacity at unsustainable price
-development & retention of knowledgeable staff
-consistent and profitable risk management
-resistance to revised treaty language, data reporting and treatment of errors and exceptions
-adverse impact of STOLI

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