Chapter 11

Question 1

What factors can shorten the market cycle?

Answer 1

A market cycle can be shortened by:
• Amendments to legislation, which can result in new or extended liabilities.
• Changes in underwriting policy.
• Weather-related incidents.
• Major disasters, such as hurricane or terrorism.

Question 2

With regard to risk accumulation, what are the two areas of potential loss exposure that insurers must consider?

Answer 2

The two areas are:
• Single risks.
• Single events.

Question 3

What is an EML?

Answer 3

EML is ‘Estimated Maximum Loss’. It is an amount expressed in a percentage form reflecting the worst financial effect that a loss could have. It could be 100% of the sum insured, but is normally less.

Question 4

What step might direct insurers take to minimise their potential aggregation of risk exposures in their fire account?

Answer 4

They could arrange adequate reinsurance cover.