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CII LM2 > Chapter 3 - Reinsurance > Flashcards

Chapter 3 - Reinsurance Flashcards

1
Q

What is reinsurance?

A

when insurers want to transfer some of their own risk to other insurers

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2
Q

Why do insurers buy reinsurance?

A
  • risk transfer
  • increase capacity
  • balance out peaks and troughs
  • peace of mind
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3
Q

Why sell reinsurance?

A
  • access business not otherwise accessible
  • become involved in a class of business on a trial basis
  • pure business preference
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4
Q

What percentage of Lloyd’s premium income in 2019 was reinsurance?

A

32%

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5
Q

What is full follow clause?

A
  • insurer does not have to inform reinsurer about claim, just presents them a bill
  • unpopular with reinsurers
  • if any suggestion of in-proper action reinsurer has right to ask questions
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6
Q

What is claims co-operation clause?

A
  • insurer informs reinsurer of claims and during handling process
  • reinsurer does not necessarily have right to interfere with claims handling strategy
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7
Q

What is claims control clause?

A
  • reinsurers preference
  • reinsurer has full decision making authority
  • failure to comply by original insurer could result in delay of reinsurance recovery or ability to recover at all
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8
Q

Define to cede

A

act of sharing risk with reinsurers

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9
Q

Define cedant

A

original insurer passing risk

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10
Q

Define cession

A

share of the risk passed to reinsurers

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11
Q

Define collecting note

A

document presented to reinsurer for claim under excess of loss reinsurance

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12
Q

Define facultative reinsurance

A

reinsurance for an individual risk

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13
Q

Define non-proportional reinsurance

A

Premium and claims do not have a direct correlation, premium set more in line with direct insurance and claims dealt with on a financial basis

e.g excess of loss, stop loss

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14
Q

Define proportional reinsurance

A

Premium and claims shared in pre-agreed proportions

e.g quota share, surplus treaty

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15
Q

Define retrocedant

A

reinsurer obtaining reinsurance for itself

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16
Q

Define retrocession

A

Cession where entity ceding is a reinsurer

17
Q

Define retrocessionaire

A

Reinsurer accepting reinsurance from an entity that is a reinsurer

18
Q

Define treaty reinsurance

A

reinsurance for a wide book of risks, e.g a whole class of business or an insurer’s whole portfolio

19
Q

Why would an insurer buy facultative reinsurance?

A
  • written a larger line on something that it wanted to

- risk is unconventional and falls outside of what is covered in their treaties

20
Q

Why do insurers have to think carefully about reinsurance?

A
  • generally more expensive
  • if too expensive, risk loses money before any claims
  • should be treated like direct insurance
21
Q

What is facultative obligatory insurance?

A

insurer has an agreement with reinsurer that if writing a risk within criteria the insurer has a choice to cede, if decides to reinsurer has to accept

22
Q

How is the premium for non-proportional reinsurance show?

A

adjustable based on cedant’s overall gross premium income with a minimum

23
Q

What is the danger of excess of loss reinsurance?

A

insurer could “burn through” the cover - reinsurers may reinstate a number of times throughout policy period, usually for a fee

24
Q

When can claims be grouped for presentation to the reinsurer?

A

When they arise out of one event

25
Q

Why would insurers want to group claims?

A

Insurer only has to pay first layer once

26
Q

What happens if a claim is presented that would breach the first life of an excess of loss policy?

A

Premium is payable to the reinsurer to activate the second life

27
Q

What is a combined ratio and when is the insurer profitable?

A

claims + operating costs / premium

if less than 100% then profitable

28
Q

What is stop loss reinsurance?

A

Triggered when an insurers combined ratio exceeds a specific point (e.g 103%), and covers losses until combined ratio hits another point (e.g 130%)

29
Q

Describe quota share treaty

A

Insurer and reinsurer share premium and claims proportionally - say 70/30

  • reinsurer sees every risk that falls into the criteria
30
Q

Describe surplus line treaties

A

Lines of reinsurance which are the same size as the maximum line allowed to write

E.g if max line is 5m and want to write a 15m risk, need two surplus lines to cover

31
Q

How is a reinsurance programme constructed?

A
  1. consider if any individual risks do not fit into proportional / non-proportional contracts and buy fac for these
  2. insurer thinks about individual classes of business and reinsurance for all risks that fall into those classes, proportional considered first then non-proportional
  3. insurer could think about XL protection for specific classes
  4. XL protection for whole account
  5. catastrophe XL protection for whole account

CII LM2 (10 decks)

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