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M21 Commercial Insurance Contract Wording > Chapter 4: Reinsurance Contracts > Flashcards

Chapter 4: Reinsurance Contracts Flashcards

1
Q

What may the insurer be called in a reinsurance contract?

A

Reinsured
Reassured
Ceding Company (Proportional reinsurance)
Cedant

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2
Q

What are the methods of reinsurance?

A

Contributing/Proportional reinsurance

Non-contributory/Non-proportional reinsurance

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3
Q

Define Proportional reinsurance

A

Fixed proportion of each risk is ceded with the reinsurer accepting the same proportion of the premium

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4
Q

Define Non-proportional reinsurance

A

Insurer retains all claims up to a fixed amount (retention). Reinsurer pays above up to a limit of liability

Premium paid is not proportional

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5
Q

What are the types of reinsurance?

A

Facultative reinsurance

Treaty Reinsurance

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6
Q

The reinsurance of individual risks is called…

A

Facultative reinsurance

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7
Q

There is an obligation for the reinsured to reinsure a particular risk and the reinsurer to accept it with facultative reinsurance. True or False?

A

False

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8
Q

The reinsurance of an insurer’s portfolio of risk is called…

A

Treaty Reinsurance

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9
Q

What are the three types of proportional reinsurance

A

Quota share treaty
Surplus Treaty
Facultative Obligatory Treaty

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10
Q

What are Quota Share Treaties?

A

Fixed proportion of every risk is reinsured subject to a max. limit of a risk

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11
Q

What are Surplus Treaties?

A

Fixed proportion of every risk is reinsured subject to maximum limit
The capacity of surplus is a multiple of the retention

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12
Q

What is Facultative Obligatory Treaties?

A

Reinsured not obliged to cede a risk but if does reinsurer must accept it

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13
Q

What are the three main types of non-proportional treaties?

A

Per risk excess of loss
Catastrophe excess of loss
Aggregate excess of loss

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14
Q

What is non-proportional treaties?

A

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

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15
Q

What questions must all reinsurance contracts record the answers to?

A
  1. Who the parties of the contract
  2. What has been agrees to reinsurer (Subject matter of business)
  3. Other terms, conditions, limitations and exclusions
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16
Q

Are reinsurance and insurance contracts the same contract?

A

No - relationship is mutually exclusive

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17
Q

Reinsurance of reinsurance is called?

A

Retrocessions

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18
Q

Why is retrocession more risky?

A

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

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19
Q

In treaty reinsurance, the business reinsured clause sets out…

A

what business the reinsurance agreement covers. Also known as the interest clause

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20
Q

The Ultimate Net Loss Clause is

A

the sum actually paid by the reinsurers in settlement of a claim.

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21
Q

What is the relationship between an Ultimate Net Clause and Cost & Expenses

A

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

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22
Q

What is ‘Cost in Addition’?

A

Paid in additional to the limit of indemnity

23
Q

What is ‘Cost Inclusive’?

A

Added to the indemnity claim.

24
Q

What is the cost to reinsured of the transaction?

A

Facultative reinsurance premium - commission - brokerage

25
Q

Is it usual for a facultative insurer to pay the reinsured a facultative commission?

A

Yes, in order to share the reinsured’s original commission and admin cots

26
Q

Does the reinsurance contract need to contain clauses dealing with the notification and settlement of claims?

A

Yes

27
Q

Which type of reinsurance contract have more involved claims process and why?

A

Facultative over treaty contracts as the underwriting are in individual risks

28
Q

What is the primary objective of a purchaser of facultative reinsurance?

A

Reinsurance protection is placed on the same terms, conditions as the original placement and responds the same way

29
Q

Would a facultative reinsurer want to give back-to-back cover?

A

Not necessarily, may require additional terms, conditions, limitations and exclusions to accept the risk

30
Q

What are the two brad categories relating to the reinsurer pertaining additional terms/conditions etc.?

A

Original policy/risk

Conduct between parties

31
Q

What may a reinsurer impose under terms pertaining to the conduct between parties?

A

Premium payment condition or warranty

32
Q

What is a Premium Payment Warranty?

A

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.

33
Q

How do the IA 2015 and Premium Payment Warranty work?

A

Unless amended to exclude IA 2015, non-payment will be limited to excluding a loss which happened before the breach was remedied

34
Q

What is the best practice for the description of the reinsured?

A

Include full name of the reinsured and the full name of the associated and subsidiary companies and branches that are protected by the reinsurance.

35
Q

What is the difference between Proportional and Non-proportional reinsurance?

A

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

36
Q

What is the purpose of a full reinsurance clause in a facultative reinsurance contract?

A

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

37
Q

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?

A

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.

38
Q

Under surplus treaty reinsurance:

A

the liability of the reinsurer is a multiple of the cedant’s retention.

39
Q

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:

A

treaty reinsurance.

40
Q

n a contract of reinsurance, the Ultimate Net Loss is the:

A

actual amount paid by a reinsured to an insured in settlement of a claim.

41
Q

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?

A

The insurer only.

42
Q

In a reinsurance contract, the interest clause refers to the:

A

business that the reinsurer is agreeing to take on.

43
Q

What is common in the 3 types of non-proportional treaties?

A

reinsured retains the first £x of losses and the reinsurer pays the above (£y) of losses

44
Q

Who are the contracting parties?

A 
The insurer (who has accepted the original insurance)
The reinsurer
45
Q

If the reinsured is more than one insurer must they be identifiable from the definition?

A

Yes

46
Q

What is the subject matter of the reinsurance in facultative reinsurance?

A

reinsured’s interest in original insurance contract

47
Q

What is the subject matter of the reinsurance in treaty reinsurance?

A

particular account or book of insurance business

48
Q

Must the reinsurance wording specify the type(or form) and method of insurance?

A

Yes

49
Q

What must the wording for Quota share facultative reinsurance specify?

A

Reinsurer’s share of the original risk

50
Q

What is a retrocedent?

A

Reinsurer ceding some or all of its reinsurance to another reinsurer(s)

51
Q

When a reinsurer transfers all or part of its liability to another seller of reinsurance it is said to…

A

Retrocede that business

52
Q

A reinsurer accepting some or all of a retrocedent’s reinsurance is known as a…

A

Retrocessionaire

53
Q 
For which class of insurance is the claims series clause used by reinsurers to enable them to
aggregate claims from one specific cause?
A

Products Liability

M21 Commercial Insurance Contract Wording (6 decks)

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