Chapter 3: Reinsurance Flashcards
Reinsurance
Insurance where insured is an insurer
Insurers purchase it to transfer some of their own risk and reduce exposure to losses
Why insurers buy reinsurance
- Risk transfer
- Peace of mind (protection from catastrophe)
- Balance out peaks and troughs
- Releasing capacity
Why firms sell reinsurance
Gaining access to business otherwise not available
* usually due to regulators restricting local business
* reinsurers gain access to business they are not allowed to write directly
Becoming involved in a class of business on a trial basis
Pure business preference
Retention/retained line
Amount of the original risk the insurer is retaining
Full follow clause
Insurer makes all the claims decisions, just gives reinsurer with the bill
- reinsurer can ask questions to ensure the settlement was made within the T+Cs
- Reinsurer will want to make sure insurer has not paid an ex gratia or settlement to keep goodwill
Claims Co-operation Clause
Insurer advises reinsurer of claims and how they are handling it
Reinsurer doesnt have any rights to intefere with strategy or decision making
Claims control clause
- Allows reinsurer full decision-making control with respects to claims
Cede
Act of sharing the risk with reinsurers
Cedant
Original insurer buying reinsurance
Cession
Share of risk passed to reinsurers
Collecting note
document to present claims to reinsurers for XoL RI
Facultative RI
- purchased for an individual risk
- only respond to claims on that one risk
Non-proportional reinsurance
- RI where premium and claims do not directly correlate.
XoL and stop loss RI
Claims paid out in excess of a pre-agreed amount
Proportional RI
Premium and claims are shared between insurer/reinsurer in pre-agreed proportion (e.g. 20%)
Quota Share and surplus treaty RI
Reinstatement
Potential for a layer to be brought back to life, for payment of additional premium
price and number of times this can be done will be specified in the contract
e.g.
Layer of US$1m xs US$1m with 3 reinstatements
Total of 4 losses could be paid out on this contract or an aggregate of US$4m in smaller losses
Reinstatement premium
Price paid by the cedant for the reinstatement of the layer after a loss
Retrocedant
Reinsurer obtaining their own reinsurance
Retrocession
A cession where the entity ceding is already a reinsurer
retrocessionaire
reinsurer that accepts the reinsurance from the original reinsurerTr
Treaty RI
reinsurance that can be purchased to cover a wider portfolio of risks.
I.e. Whole class of business or whole insurer book of business
Facultative Reinsurance (Fac)
meaning optional/not compulsory
reinsurance which protects itself in relation to one risk only
can be used to transfer risk on only certain perils