Chapter 11 Flashcards
Why is the insurance market cyclical?
It’s goes through repeated periods of hardening and softening.
What are some external factors that can shorten cycles?
- legislation changes
- weather related incidents
- major disasters such as terrorist acts
What are the 2 main types of events that can cause loss exposures?
- Single risks
- Single events
Does MPL have to be accurate?
Maximum probable loss has to be accurate or it doesn’t have any purpose.
What happens if the EML is greater than expected?
They can purchase reinsurance or co-insurance can be arranged.
Simply, what is reinsurance?
Sharing the risk by insurers insuring themselves.
Why do insurers seek reinsurance?
- Protection against single large events
- Protection against fluctuating claims costs
- When entering new markets
- Sharing hazardous risks
- Peace of mind
What are 2 types of re-insurance?
Proportional
Non-proportional
What is quota share and what is an advantage and disadvantage.
An agreed proportional of ALL risks are covered by the reinsurer.
It’s easy to work out/administer. Insurers have to pay for reinsurance for risks they could cover themselves.
Who is quota shared often used by?
New insurance companies.
What is surplus reinsurance?
Insurer only reinsures risks above a certain limit and will purchase additional layers of insurance. (Like an excess liability policy.)
What is excess of loss?
A non-proportional re-insurance written on a per risk basis or per event basis. (In layers)
What is stop loss?
It only has reinsurance for risks above a certain loss ratio.
What is to cede?
The act of sharing risks with reinsurers.
Who is the cedant.
The orignal insurer, who passes the risk to the re-insurer
