Chapter 4: Reinsurance Contracts Flashcards
What may the insurer be called in a reinsurance contract?
Reinsured
Reassured
Ceding Company (Proportional reinsurance)
Cedant
What are the methods of reinsurance?
Contributing/Proportional reinsurance
Non-contributory/Non-proportional reinsurance
Define Proportional reinsurance
Fixed proportion of each risk is ceded with the reinsurer accepting the same proportion of the premium
Define Non-proportional reinsurance
Insurer retains all claims up to a fixed amount (retention). Reinsurer pays above up to a limit of liability
Premium paid is not proportional
What are the types of reinsurance?
Facultative reinsurance
Treaty Reinsurance
The reinsurance of individual risks is called…
Facultative reinsurance
There is an obligation for the reinsured to reinsure a particular risk and the reinsurer to accept it with facultative reinsurance. True or False?
False
The reinsurance of an insurer’s portfolio of risk is called…
Treaty Reinsurance
What are the three types of proportional reinsurance
Quota share treaty
Surplus Treaty
Facultative Obligatory Treaty
What are Quota Share Treaties?
Fixed proportion of every risk is reinsured subject to a max. limit of a risk
What are Surplus Treaties?
Fixed proportion of every risk is reinsured subject to maximum limit
The capacity of surplus is a multiple of the retention
What is Facultative Obligatory Treaties?
Reinsured not obliged to cede a risk but if does reinsurer must accept it
What are the three main types of non-proportional treaties?
Per risk excess of loss
Catastrophe excess of loss
Aggregate excess of loss
What is non-proportional treaties?
Reinsured retains the first £x of losses and reinsurer pays £y in excess of £x of losses
i.e. Reinsured has an excess of loss treaty with limit of 45k an excess/retention of 5k. Reinsurer pays 5k
What questions must all reinsurance contracts record the answers to?
- Who the parties of the contract
- What has been agrees to reinsurer (Subject matter of business)
- Other terms, conditions, limitations and exclusions
Are reinsurance and insurance contracts the same contract?
No - relationship is mutually exclusive
Reinsurance of reinsurance is called?
Retrocessions
Why is retrocession more risky?
Becomes more difficult for retrocessionaire to identify its exposures
Proportional reinsurance - Premium received id reduced by deduction of commission, reinsurance commission, overriding commission and brokerage
Non-proportional reinsurance - premium received will be influenced by reinsurers assumptions regarding risk premium and catastrophe loss provisions which the reterocessionaire has no input/influence
In treaty reinsurance, the business reinsured clause sets out…
what business the reinsurance agreement covers. Also known as the interest clause
The Ultimate Net Loss Clause is
the sum actually paid by the reinsurers in settlement of a claim.
What is the relationship between an Ultimate Net Clause and Cost & Expenses
Ultimate net clause explains how costs and expenses incurred by the reinsured in handling the original claim is dived between parties. This is either cost in addition or cost inclusive
What is ‘Cost in Addition’?
Paid in additional to the limit of indemnity
What is ‘Cost Inclusive’?
Added to the indemnity claim.
What is the cost to reinsured of the transaction?
Facultative reinsurance premium - commission - brokerage
Is it usual for a facultative insurer to pay the reinsured a facultative commission?
Yes, in order to share the reinsured’s original commission and admin cots
Does the reinsurance contract need to contain clauses dealing with the notification and settlement of claims?
Yes
Which type of reinsurance contract have more involved claims process and why?
Facultative over treaty contracts as the underwriting are in individual risks
What is the primary objective of a purchaser of facultative reinsurance?
Reinsurance protection is placed on the same terms, conditions as the original placement and responds the same way
Would a facultative reinsurer want to give back-to-back cover?
Not necessarily, may require additional terms, conditions, limitations and exclusions to accept the risk
What are the two brad categories relating to the reinsurer pertaining additional terms/conditions etc.?
Original policy/risk
Conduct between parties
What may a reinsurer impose under terms pertaining to the conduct between parties?
Premium payment condition or warranty
What is a Premium Payment Warranty?
Imposed irrespective of original payment terms.
Provide reinsurance premium is paid by the reinsured and received by reinsurer by a date otherwise cover will cease from the beginning.
How do the IA 2015 and Premium Payment Warranty work?
Unless amended to exclude IA 2015, non-payment will be limited to excluding a loss which happened before the breach was remedied
What is the best practice for the description of the reinsured?
Include full name of the reinsured and the full name of the associated and subsidiary companies and branches that are protected by the reinsurance.
What is the difference between Proportional and Non-proportional reinsurance?
With proportional, insurer reinsurers a fixed proportion of each risk with the reinsurer.
With Non-proportional, insurer retains claims up to a fixed amount and reinsurer pays all claims exceeding the retention up to the limit of liability
What is the purpose of a full reinsurance clause in a facultative reinsurance contract?
To state that the facultative reinsurance follows the terms and conditions of the original policy subject to conditions that govern the reinsurance contract between the reinsurer and insurer
How did the House of Lord’s decision in Wasa v. Lexington 2009 amend the interaction between the law governing the insurance contract and that covering the reinsurance contract for reinsurance contracts effected under English Law?
HoL found that where the reinsurance contract does not explicitly bind the reinsurers to the law governing the original policy the reinsurance contract may not be held to follow the original settlement if by English Law it is outside the terms of the contract of reinsurance.
Under surplus treaty reinsurance:
the liability of the reinsurer is a multiple of the cedant’s retention.
Under a reinsurance arrangement, a reinsurer agrees to pay 20% of all successful claims made against an insurer. This type of arrangement is known as:
treaty reinsurance.
n a contract of reinsurance, the Ultimate Net Loss is the:
actual amount paid by a reinsured to an insured in settlement of a claim.
The insured has property and business interruption insurance with an insurer which in turn has reinsurance arrangements. Which of the parties involved might be referred to as a ceding company?
The insurer only.
In a reinsurance contract, the interest clause refers to the:
business that the reinsurer is agreeing to take on.
What is common in the 3 types of non-proportional treaties?
reinsured retains the first £x of losses and the reinsurer pays the above (£y) of losses
Who are the contracting parties?
The insurer (who has accepted the original insurance) The reinsurer
If the reinsured is more than one insurer must they be identifiable from the definition?
Yes
What is the subject matter of the reinsurance in facultative reinsurance?
reinsured’s interest in original insurance contract
What is the subject matter of the reinsurance in treaty reinsurance?
particular account or book of insurance business
Must the reinsurance wording specify the type(or form) and method of insurance?
Yes
What must the wording for Quota share facultative reinsurance specify?
Reinsurer’s share of the original risk
What is a retrocedent?
Reinsurer ceding some or all of its reinsurance to another reinsurer(s)
When a reinsurer transfers all or part of its liability to another seller of reinsurance it is said to…
Retrocede that business
A reinsurer accepting some or all of a retrocedent’s reinsurance is known as a…
Retrocessionaire
For which class of insurance is the claims series clause used by reinsurers to enable them to aggregate claims from one specific cause?
Products Liability
