Chapter 3 - Reinsurance Flashcards
What is reinsurance?
Risk transfer from insurer to a reinsurer
What does reinsurance provide for the insurer?
Peace of mind
Evens out peaks and troughs in results
What does reinsurance allow for the insurer?
Releases capacity for the insurer to write more direct business
Can a firm specialise in just reinsurance?
Yes
Why do firms sell reinsurance?
- Access types of business / parts of the world that they cannot or do not want to access directly. Limited by overseas licence regulators / surplus lines - prevents premium leaving the country, give to local insurers
- Trial a class of business via an insurer instead of hiring a team
- Preference e.g., Munich Re, Swiss Re
Is London the largest reinsurance market in the world?
No
Are there different types of reinsurance? Are some more akin to financial instruments than traditional reinsurance products?
Yes
What are the main reinsurance products?
Facultative
Proportional treaty
Non-proportional treaty
Do reinsurance contracts contain provisions about the amount of in put that the reinsurer can have in the original claims?
Yes
What does retrocession mean?
Reinsurance contract where the buyer is already a reinsurer
When is facultative reinsurance usually purchased?
Used to protect an individual, usually unusual risks
What is proportional reinsurance?
Insurer and reinsurer sharing risks in equal proportions - subject to the cap on the reinsurance
What are the two main types of proportional reinsurance?
Quote share
Surplus lines
What is excess of loss reinsurance?
Non-proportional
Purchased in vertical layers - could be different reinsurers through different brokers
If there is a claim, then work through layers/policy limits to see which reinsurers need to pay out
What is the purpose of stop loss insurance?
Protect an insurer’s loss ratio - premium vs claims and operating costs
>100% then insurers have made a loss
Done in layers like XOL
What is the term used for the amount of the original risk an insurer is retaining?
Retention
Retained line
Are there set rules for a reinsurance programme when being constructed?
No
What must an insurer consider when writing a reinsurance contract?
Exposures
How much they are willing to pay
Can individual risks be protected with facultative reinsurance?
Yes
Can different classes of business be in one treaty?
No - prop or non-prop
How can an insurer’s entire account be protected?
With a non-prop treaty
If more than one reinsurance policy is available for a claim, what order are they triggered in?
Fac
Prop
Non-prop
What are the 3 main clauses for reinsurance claims?
- Full follow clause
- Claims co-operation clause
- Claims control clause
What is a full follow clause?
Insurer makes all claims decisions and presents a bill
Preferred by original insurers
What is a claims co-operation clause?
Middle ground
Insurer has to advise reinsurer of the loss/handling during a claim
Reinsurer does not have any right to interfere with insurers claims handling strategy/decision making
What is a claims control clause?
Reinsurers preferred option
Allows reinsurer to have full decision-making control over
What is a collecting note?
Document used to present claim to reinsurers for XOL
What is non-proportional reinsurance?
Premium and claims do not have a direct correlation
Claims paid in pre-agreed amount
What is proportional reinsurance?
premium and claims shared between insurer and reinsurer
What is reinstatement/reinstatement premiuim?
Non prop reinsurance for layer to be ‘reinstated’ after a loss with additional premium
e.g., 1m with 3 reinstatements = 4m worth of claims
Is fac RI more expensive than other types of RI?
Yes - not bulked
What is fac obligatory reinsurance?
Risk is written by insurer, then reinsurer has to accept it
Usually when good trusting relationship
Insurer has ability to pass on bad risks
What are the lower layers in a reinsurance programme known as?
Working layers
More likely to pay a claim - lower limit
What are higher layers in a reinsurance programme known as?
Catastrophe layers
Less likely to pay a claim - less common
Are premiums for a non proportional reinsurance be shown on an adjustable basis?
Yes - start of the year, cedant doesn’t know what amount of premium needs to be protected
Pay a deposit premium then adjust
What happens if all reinsurance layers are used up leaving the claim exposed for an insurer?
Reinstate the policy a number of times to collect more than one total loss in the year
Reinsurer might do this without charge but some charge proportion of orig premium
Do reinstatement premiums trigger payment of brokerage to the broker?
No
What is a quota share treaty?
Every risk that the insurer accepts, it will cede it to the treaty and pay an agreed proportion of the premium to
the reinsurer e.g., 30% quota share, 30% of premium to reinsurer, 30% of claims paid by reinsurer
Proportion defined in contract - retention
What is an 100% quota share known as?
Fronting arrangements - insurer is acting as a local face in a market to satisfy regulatory requirements but keeps none of the risk itself
What is an underwriters maximum retained line?
Controls around how large a share of any risk it can accept
What is a surplus lines treaty?
the original insurer buys reinsurance in what are known as ‘lines’ which are the same as the maximum lines or shares that it can accept on any one risk on its own
What are examples of government-based reinsurance programmes?
TRIPRA Terrorism Risk Insurance Program Reauthorization Act aka TRIA - Terrorism Risk Insurance Act
