Chapter 3: Reinsurance Flashcards
Why might insurers buy reinsurance?
risk transfer, peace of mind, balancing out peaks and troughs, and to release capacity
Why do firms sell reinsurancee?
To access business otherwise not available, to trial a new line of business, or pure preference
How much of Lloyd’s premium comes from reinsurance?
Approximately 35%
Define ‘retained line’
The amount of the original risk the insurer is retaining
Define ‘retention’
The amount of the original risk the insurer is retaining
Define ‘alternative risk transfer’
Other forms of risk transfer mechanisms
Define ‘full follow clause’
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!
Define ‘claims co-operation clause’
The original insurer has to advise the reinsurer of a loss and must keep them advised when handling a claim
Define ‘claims control clause’
The reinsurer has full decision-making control in claims handling
What is a collecting note?
Document used to present the claim to reinsurers for excess of loss reinsurance
When is reinstatement done?
In non-proportional reinsurance
What is a retrocedant?
A reinsurer obtaining reinsurance for themselves
What is a retrocession?
A cession where the entity ceding is already a reinsurer
What is a retrocessionaire?
A reinsurer accepting reinsurance from a reinsurer
Define ‘facultative reinsurance’
Reinsurance for one risk only
What type of reinsurance is more expensive?
Fac, due to admin costs
Define ‘facultative obligatory reinsurance’
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
What is needed for a fac obligatory reinsurance contract to be successful?
Trust between the insurer and reinsurer
Define ‘excess of loss’ reinsurance
non-proportional reinsurance, no sharing of premium and the reinsurance is bought in layers
What type of reisnurance are XL normally?
not normally fac, but reinsurance contracts that cover more than one risk
What is stop loss reinsuarnce?
Reinsurance triggered when the insurer hits a certain combined ratio
Define ‘proportional reinsurance’
There is a relationship between the premium the original insurer receives and teh amount passed to reinsurers
Define ‘quota share treaty’
for every risk an insurer accepts, it will cede it to the treaty and pay an agreed proportion to the reinsurer
Define ‘surplus treaty’
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
Define ‘reinsurance programme construction’
Constructing a programme which covers you enough, but not too much
Which reinsurance contract replies responds first to any loss?
The most specific one
