Chapter 7 - Underwriting Flashcards
Name 5 reasons why an underwriter would not take 100% risk
Capacity limits
Appetite for Risk
Aggregation
Broker influence
Insured influence
Why might other markets be used to place risk?
Location loyalty
Lack of capacity in London
What are the operating costs in the london market?
30-40%
What is the capability of the PPL
Handles all risks from quote, through to binding and post bind placements - End to end integration
When would a drop in ratings not concern an insurer?
When the ratings across the board drop
Why does rating matter for insurers?
Insurers who cannot pay out in claims can result in professional negligence claims to the broker
Who are the bureau leads on a slip?
Lloyds lead and companies market lead
In what scenario would the slip lead not be a bureau lead?
Lead by lead who doesn’t operate through Xchanging
Who is the slip lead?
The lead insurer setting terms and conditions
Who does the broker ultimately owe duty to?
Their principal
Who does the insurer owe duty to?
The investors
What are the 4 key requirements for the consumer act 2023?
Products fit for purpose
Value for money
Consumer understanding
Consumer support and benefitting from product
What is exposure modelling? What is it primarily used for?
Does the risk written combine to create a concentration of risks? e.g. geographically or else where
Reinsurance purchasing
What is the probable maximum loss? What is it used for?
The realistic total loss, typically less than total insured
Reinsurance purchasing
What is loss modelling?
Financial impact of worst case scenarios occuring
How does RDS work - Realistic Disaster Scenarios - List out the 4 steps
Which risks might be exposed, maximium claim per risk
Reinsurance coverage and cost
Calculate gross financial exposure and net loss after reinsurance caps
What are the 4 key risks that are used in RDS, How many other sceanrios do they need to consider?
Windstorms
Earthquakes
Terrorism
Cyber attacks
+2 more
What are some of the advised scenarios of risk to cover?
Marine, aviation, space, energy, liability and political
What is the purpose of catastrophe modelling?
What are the key factors they will consider?
Impact assessment of the non financial risk factors. Such as claims volume handling
Frequency and severity of claim
What are the two factors used to calculate premium?
Base (Depends on risk type) + Rate (exposure)
What is the total premium for a 10M property charged at 2% per £100?
200k
For liability insurance, what is the premium base calculated on for EL, PL and PI insurance?
Employer’s liability - payroll of insured
Public liability - turn over
Prof. Indem - Fees earned
Name two types of insurance which is paid in stages
Marine and stock throughput
What is implied through an open cover type insurance?
Regular declarations are made to the insurer and premium is paid periodically
How does BIPAR impact premiums?
Following insurers cannot align their insurance premiums if one party decides to ask for more
What 5 other factors contribute to premium calculations?
Operational costs
Reinsurance costs
Claim reserve contribution
Profit margin
Taxes
How is reserving done for small value, large volume policies?
Blanket reserving
What additional factors should be considered when calculating reserves?
Cost of indemnity
Operational + Expert costs
How does the interest rate affect reserving?
If interest rate = negative, over-reserving is required and vice versa
Claimant can claim interest
E.g. +0.25% on 1M means 997500 can be reserved.
Why don’t insurers reserve the full payout?
Higher liability, more captial required to maintain solvency, less liquid
Why shouldn’t insurers under-reserve?
Mislead investors, cannot payout in full
How does inflation affect long tail claims?
Increase the total pay out then when the claim was first advised
What is IBNR / IBNER
The amount that they need to reserve for the claims not yet advised. Calculated using historic data
What is the difference between IBNR and IBNER
IBNR = Claims not yet advised
IBNER (Incurred by not enough reported) - claims advised but not enough reserved to pay
What are trust funds? How is it calculated?
Reserves that must be held in that country for the risks which they have underwritten in that country
Reserves that are held on the open claims within the market systems
How long do Lloyds give syndicates to close their books?
3 years. e.g. for UWY 2021, review will open at 2024
What is the purpose of reinsurance to close (RITC)
Used to close an accounting year. Reinsurance is purchased for next year’s account to cover these unclosed claims
How is RITC calculated?
Future liabilities - this is the basis for the syndicate to work out premium charged for those liabilities
What happens if RITC is not possible due to complex / large claims not yet settled?
Who might have to pay this>
Open years agreement
Lloyds’ member or central funds
Why do insurers not have to transfer liabilities formally from one year to the next? where as syndicates do
Syndicates exist for 1 year, insurers don’tW
What is commercial RITC market?
Transfer of liabilities where the next year’s account is not linked to the previous owner
What is reinsurance pricing primarily based on?
Unsettled claim liablities
On what factors do ratings companies use to rate insurance firms?
Financial position
Management
Operation
Comparison to others
What is RITC used to protect against?
Cost of unreported / outstanding claims
What is the role of the leader?
Set good terms and conditions for insured
