Chapter 7 - G Flashcards
What is Reinsurance to Close (RITC)?
A process by which a syndicate purchases reinsurance to cover future liabilities before declaring a profit or loss for a closed underwriting year.
RITC allows insurers to manage outstanding claims while finalizing their financial statements.
What is the purpose of reviewing premiums and claims at the end of the underwriting year?
To declare a profit or loss for that year.
This review occurs three years after the underwriting year ends, following Lloyd’s syndicate practices.
How long does Lloyd’s syndicates give for business to develop before reviewing it?
Three years.
This period allows for the assessment of premiums and claims to determine profitability.
What happens if a profit is declared at the end of the review?
The insurer releases some funds to the Names, closing the year on their liabilities.
Names are the investors in Lloyd’s syndicates.
What does it mean to ‘close’ a year in insurance terms?
To declare a profit or loss for that year and release investors from further liabilities.
This involves managing outstanding claims through reinsurance.
What must a syndicate calculate before purchasing RITC?
The remaining future liabilities.
This includes an element of Incurred But Not Reported (IBNR) reserves.
What is IBNR?
Incurred But Not Reported - a reserve for claims that have occurred but not yet been reported.
IBNR is essential for accurate liability calculations in insurance.
What can prevent a syndicate from finalizing RITC?
Inability to calculate liabilities or an unacceptable reinsurance premium.
This results in the year remaining ‘open’ with ongoing claims management.
What happens to investors if a year remains open due to outstanding claims?
Investors cannot be released from their liabilities, and claims are managed to their conclusion.
The financial position may worsen until claims are resolved.
What is the Central Fund in Lloyd’s?
A fund that provides additional security for claims when syndicates exhaust their premium and members’ funds.
It is not a bottomless pit and is closely monitored by Lloyd’s.
What is a commercial RITC?
A market for organizations to take over future liabilities of a syndicate without a historic link.
This differs from traditional RITC, which typically involves the next syndicate year.
What does it mean when an insurance company goes into ‘run-off’?
The company stops writing new risks and focuses on managing outstanding claims.
Run-off companies exist to handle these claims for a fee.
True or False: RITC must always be with the next syndicate year of account.
False.
RITC can also be obtained from commercial organizations.
