Chap 1-4 Flashcards
Who within the Lloyd’s Market is responsible for meeting the Lloyd’s Principles for doing good business
Managing Agents
Who provides the capital that enables Lloyd’s to write insurance?
Its members
What is Errors and Omissions Insurance also known as?
Professional Indemnity OR Professional Negligence Insurance
In Marine insurance, what is the principle of General Average?
A contribution paid to someone for making a sacrifice to save everyone else’s property
What type of insurance will have a ‘maintenance period’?
Construction - post handover/completion date
What class of insurance will have a ‘waiting period’?
Business Interruption- i.e. if the policy period has a waiting period of 14 days and your business is back up and running in 7 days, you have no claim.
- the insurer will also set out a max payout time in days/months
- also requires some physical loss/damage to insured’s property
What is a ‘losses occurring’ policy?
Most property/first party policies - triggered by losses that happen during the policy period
What is a ‘claims made’ policy?
Generally liabs/3rd party policy - triggered by claims being made on the insured, which may be some time after the alleged incident occurred.
The policy that is triggered is the one in force when the claim is made, not the one in force when the alleged wrongdoing took place.
i.e. D&O
Why buy reinsurance?
- risk transfer
- peace of mind
- balancing peaks & troughs
- releasing capacity
Why sell reinsurance?
- Accessing business not otherwise accessible
- Access new classes of business
- Business preference
REINSURANCE: Full Follow Clause
Insurer makes all claims decisions - doesn’t even have to tell reinsurer a claim in process
REINSURANCE: Claims Co-Operation Clause
[MIDDLE GROUND] Insurer has to advise reinsurer of loss + handling of claim
Reinsurer doesn’t necessarily have any rights to interfere w/ decision making
REINSURANCE: Claims Control Clause
Full decision-making control to reinsurer
What is Facultative Obligatory Reinsurance?
For all risks that fall within a pre-agreed set of criteria, the insurer has the choice to cede individual risk to reinsurer.
Reinsurer HAS to accept it (obligatory)
What is Excess of Loss Reinsurance?
NON-PROPORTIONAL (prem/claims not shared in equal proportions)
coverage bought in layers of ANY size to build reinsurance programme, e.g. 1m retained + 2m xs 1m + 1m xs 3m = 4m XL reinsurance.
Can be purchased as fac, but more often as contracts/portfolio
What is reinstatement?
Bringing a policy back to life to allow more than one total loss during the year of policy (at cost of proportion of orginal premium)
No brokerage on additional cover
Once you use a part of the first life, you pay a proportion of the prem for the next life (i.e. 50% of first life, 50% of prem for next life)
What is Stop Loss Reinsurance?
Variation on excess of loss - layers still used but policy linked to insurer’s combined ratio
Layer of reinsurance protection that is triggered when an insurer’s combined ratio exceeds a stated point (i.e. 105%)
What is a combined ratio?
% of premium income represented by claims + operating costs (incl. cost of reinsurance)
claims + op costs / premium
i.e. 1M premium vs 800k in claims + op. costs -> combined ratio = 80%
combined ratio < 100% = profit
PROPORTIONAL REINSURANCE: Quota Share Treaty
Yearly agreement
For every risk the insurer accepts (in a defined category), it will cede it to the treaty, and pay an agreed proportion of premium to reinsurer
Agreed in contract = share insurer will retain itself (i.e. 70%)
Insurer has no choice to keep good ones to itself like fac. oblig.
PROPORTIONAL REINSURANCE: Surplus (Lines) Treaty
Allows insurer’s ‘max retained line’ to be increased in multipliers of the original line
i.e. UWR permitted to write max £5m.
If most they would ever want to write = £30m, they need additional 25m, which = 5 x 5m (orig line)
They need a five line surplus treaty
Share prem/claims proportionately.
What is a collecting note?
To present a request for funds to a reinsurer (typically XL reinsurance)
When an insurer arranges reinsurance for a standard risk, which contracts are usually considered first?
Proportional treaty contracts
(then non-prop. contracts - XL, then catastrophe XL)
What type of reinsurance will usually be relatively time-consuming to set up and is more expensive as a result?
Facultative reinsurance
What is a solvency margin (+ equation)?
The amount assets exceed liabilities
Solvency = having more assets than liabs
Assets ≥ paid claims + unpaid claims + operating costs
What are the objectives of Solvency II?
- better regulation
- deeper integration of market
- client protection
- improved competitiveness
What are the 3 pillars of Solvency II?
- Quant. requirements
- Supervisory review (senior management risk assess)
- Disclosure of info
What is an example of a credit risk
- premiums not being paid
- reinsurance claims not being recoverable bc reinsurer is insolvent
What is an example of an operational risk
- UWR’s writing risks outside their authority
- business unable to operate because building is damaged
- market systems not available to use
What is an example of a market risk
- Investments failing
- Exchange rate losses when dealing with multiple currencies
What is an example of a liquidity risk
Not being able to release investments quickly enough
What is the basic rate of contribution (on premiums) to the Central Fund?
0.35%
How are insurance companies and Lloyd’s Market rated by rating agencies?
Insurance companies are rated individually, Lloyd’s is rated as a single marketplace
Why might risks be placed outside of London?
- location of insured
- culture / local knowledge
- experienced insurers
- claims service - compete with London
