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