Chapter 3: Reinsurance

Question 1

Why might insurers buy reinsurance?

Answer 1

risk transfer, peace of mind, balancing out peaks and troughs, and to release capacity

Question 2

Why do firms sell reinsurancee?

Answer 2

To access business otherwise not available, to trial a new line of business, or pure preference

Question 3

How much of Lloyd’s premium comes from reinsurance?

Answer 3

Approximately 35%

Question 4

Define ‘retained line’

Answer 4

The amount of the original risk the insurer is retaining

Question 5

Define ‘retention’

Answer 5

The amount of the original risk the insurer is retaining

Question 6

Define ‘alternative risk transfer’

Answer 6

Other forms of risk transfer mechanisms

Question 7

Define ‘full follow clause’

Answer 7

The insurer makes all the claims decisions, it does not have to tell the reinsurer a claim is in progress, then it gives the reinsurer the bill!

Question 8

Define ‘claims co-operation clause’

Answer 8

The original insurer has to advise the reinsurer of a loss and must keep them advised when handling a claim

Question 9

Define ‘claims control clause’

Answer 9

The reinsurer has full decision-making control in claims handling

Question 10

What is a collecting note?

Answer 10

Document used to present the claim to reinsurers for excess of loss reinsurance

Question 11

When is reinstatement done?

Answer 11

In non-proportional reinsurance

Question 12

What is a retrocedant?

Answer 12

A reinsurer obtaining reinsurance for themselves

Question 13

What is a retrocession?

Answer 13

A cession where the entity ceding is already a reinsurer

Question 14

What is a retrocessionaire?

Answer 14

A reinsurer accepting reinsurance from a reinsurer

Question 15

Define ‘facultative reinsurance’

Answer 15

Reinsurance for one risk only

Question 16

What type of reinsurance is more expensive?

Answer 16

Fac, due to admin costs

Question 17

Define ‘facultative obligatory reinsurance’

Answer 17

The insurer agrees with the reinsurer for all the risks it writes which fall in a preagreed set of criteria, the original insurer can choose to cede the risk to reinsurers. If it does, the reinsurer has to take it

Question 18

What is needed for a fac obligatory reinsurance contract to be successful?

Answer 18

Trust between the insurer and reinsurer

Question 19

Define ‘excess of loss’ reinsurance

Answer 19

non-proportional reinsurance, no sharing of premium and the reinsurance is bought in layers

Question 20

What type of reisnurance are XL normally?

Answer 20

not normally fac, but reinsurance contracts that cover more than one risk

Question 21

What is stop loss reinsuarnce?

Answer 21

Reinsurance triggered when the insurer hits a certain combined ratio

Question 22

Define ‘proportional reinsurance’

Answer 22

There is a relationship between the premium the original insurer receives and teh amount passed to reinsurers

Question 23

Define ‘quota share treaty’

Answer 23

for every risk an insurer accepts, it will cede it to the treaty and pay an agreed proportion to the reinsurer

Question 24

Define ‘surplus treaty’

Answer 24

the original insurer buys reinsurance at the same size as the lines it can write on its own- to maximise capacity if it is good business sense to do so

Question 25

Define ‘reinsurance programme construction’

Answer 25

Constructing a programme which covers you enough, but not too much

Question 26

Which reinsurance contract replies responds first to any loss?

Answer 26

The most specific one