Chapter 11 Flashcards
What happens if an insurer experiences higher profits in a particular class of business?
The insurer and their reinsurer will want to increase investment in that class to accept more business with a view to generating greater profits. Market-wide capacity increases but premium rates are reduced as insurers try to maintain market share and underwrite more new business risks
Claims costs rise as a result of claims inflation and this plus a reduced premium rate affects underwriting profits. The result is a reduction in returns for investors and eventually the withdrawal of capacity which causes premiums to rise
What kind of market is it when rates are reducing?
Softening
How can cycles be shortened?
- Amendments to legislation that result in new liabilities arising for different classes of accident, injury or loss, where none existed previously
- More onerous legislation can extend liabilities, which were not envisaged or reflected in premium levels, during the currency of policies
- Weather related incidents
- Major disasters such as hurricanes or acts of terrorism
What is the advantage of quota share reinsurance?
Easy to administer. The reinsurer accepts its proportion as soon as the business is written
What is a disadvantage of quota share reinsurance?
The insurer must pay the reinsurer premiums for risks that it could retain for its own account
When is quote share reinsurance mainly used?
By new insurance companies or where an existing company is embarking on a new class of insurance
What is a retrocedant?
A reinsurer obtaining reinsurance for itself
What is retrocession?
A cession where the entity ceding is already a reinsurer
What is retrocessionaire?
A reinsurer accepting reinsurance from an entity that is itself a reinsurer
