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RMI 640 > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

Reinsurance

A

the transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium to indemnify another insurer for some of all the financial consequences of certain loss exposures covered by the primary’s insurance policies

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2
Q

Primary insurer

A

the insurer that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual arrangement

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3
Q

Reinsurer

A

the insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement

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4
Q

Reinsurance agreement

A

contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be reinsured

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5
Q

Insurance risk

A

uncertainty about the adequacy of insurance premiums to pay losses

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6
Q

Retention

A

the amount retained by the primary insurer in the reinsurance transaction

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7
Q

Reinsurance premium

A

the consideration paid by the primary insurer to the reinsurer for assuming some or all of the primary insurer’s insurance risk

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8
Q

Ceding commission

A

an amount paid bu the reinsurer to the primary insurer to cover part or all of the primary insurer’s policy acquisition expenses

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9
Q

Retrocession

A

a reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire)

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10
Q

Retrocedent

A

the reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer

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11
Q

Retrocessionaire

A

the reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer

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12
Q

Reinsurance functions

A
  • Increase large-line capacity
  • Provide catastrophe protection
  • Stabilize loss experience
  • Provide surplus relief
  • Facilitate withdrawal from a market segment
  • Provide underwriting guidance
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13
Q

Large-line capacity

A

an insurer’s ability to provide larger amounts of insurance for property loss exposures or higher limits of liability for liability loss exposures, than it is otherwise willing to provide

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14
Q

Line

A

the max amount of insurance or limit of liability that an insurer will accept on a single loss exposure

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15
Q

Surplus relief

A

a replenishment of policyholders’ surplus provided by the ceding commission paid to the primary insurer

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16
Q

Portfolio reinsurance

A

reinsurance that transfers to the reinsurer liability for an entire type of insurance, territory, or book of business after the primary insurer has issued the polices

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17
Q

Novation

A

an agreement under which one insurer or reinsurer is substituted for another

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18
Q

Professional reinsurer

A

an insurer whose primary business purpose is serving other insurer’s reinsurance needs

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19
Q

Direct writing reinsurer

A

a professional reinsurer whose employees deal directly with primary insurers

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20
Q

Reinsurance intermediary

A

an intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts of reinsurance btw the primary insurer and reinsurer, receiving commission for placement and other services rendered

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21
Q

Reinsurance pools, syndicates, and associations

A

groups of insurers that share the loss exposures of the group, usually through reinsurance

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22
Q

Pool

A

a reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure risks the individual members are unwilling to individually insure

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23
Q

Syndicate

A

a group of insurers or reinsurer involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer, each syndicate member accepts predetermined shares of premiums, losses, expenses, and profits

24
Q

Association

A

an organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the org

25
Q

Adverse selection

A

the decision to reinsure those loss exposures that have an increased probability of loss because the retention of those loss exposures in undesirable

26
Q

Facultative certificate of reinsurance

A

an agreement that defines the terms of the facultative reinsurance coverage on a specific loss exposure

27
Q

Pro rata reinsurance

A

the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses)

28
Q

Flat commission

A

a ceding commission that is a fixed percentage of the ceded premiums

29
Q

Profit sharing commission

A

a ceding commission that is contingent on the reinsurer realizing a predetermined percentage of excess profit on ceded loss exposures

30
Q

Sliding scale commission

A

a ceding commission based on a formula that adjusts the commission according to the profitability of the reinsurance agreement

31
Q

Quota share reinsurance

A

a type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a fixed percentage

32
Q

Variable quota share treaty

A

a quota share reinsurance treaty in which the cession percentage retention varies based on specified pre-determined criteria such as the amount of insurance needed

33
Q

Loss ratio

A

a ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses

34
Q

Surplus share reinsurance

A

a type of pro rata reinsurance in which the policies covered are those whose amount of insurance exceeds a stipulated dollar amount, or line

35
Q

Reinsurance limit

A

the max amount that the reinsurer will pay for a claim and that is commonly stated in the reinsurance agreement

36
Q

Excess of loss reinsurance

A

nonproportional; the primary insurer is indemnified for losses that exceed a specified dollar amount

37
Q

Attachment point

A

the dollar amount above which the reinsurer responds to losses

38
Q

Subject premium

A

the premium the primary insurer charges on its underlying policies and to which a rate is applied to determine the reinsurance premium

39
Q

Working cover

A

an excess of loss reinsurance agreement with a low attachment point

40
Q

Per risk excess of loss reinsurance

A

a type of excess of loss reinsurance that covers property insurance and that applies separately to each loss occurring to each risk

41
Q

Catastrophe excess of loss reinsurance

A

a type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event

42
Q

Co-participation provision

A

a provision in reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point

43
Q

Per policy excess of loss reinsurance

A

a type of excess of loss reisurance that applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each policy

44
Q

Per occurrence excess of loss reinsurance

A

a type of excess of loss reinsurance that applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more of the primary insurer’s policies

45
Q

Aggregate excess of loss reinsurance

A

a type of excess of loss reinsurance that covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or as a loss ratio, and that occur over a specified period, usually one year

46
Q

Finite risk reinsurance

A

a nontraditional type of reinsurance in which the reinsurer’s liability is limited and anticipated investment income is expressly acknowledged as an underwriting component

47
Q

Capital market

A

a financial market in which long term securities are traded

48
Q

Securitization of risk

A

the use of securities or financial instruments (stocks, bonds) to finance an insurer’s exposure to catastrophic loss

49
Q

Special purpose vehicle

A

a facility established for the purpose of purchasing income producing assets from an organization, holding title to the, and then using those assets to collateralize securities that will be sold to investors

50
Q

Insurance derivative

A

financial contract whose value is based on the level of insurable losses that occur during a specific time period

51
Q

Contingent capital arrangement

A

an agreement entered into before any losses occur, that enables an org. to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold

52
Q

Insurance linked security

A

a financial instrument whose value is primarily driven by insurance and/or reinsurance events

53
Q

Surplus note

A

a type of unsecured debt instrument issued only by insurers, that has characteristics of both conventional equity and debt securities and is classified as policyholders’ surplus rather than as a liability on the insurer’s statutory balance sheet

54
Q

Strike price

A

the price at which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period

55
Q

Reinsurance program

A

the combo of reinsurance agreements that a primary insurer purchases to meet its reinsurance needs

56
Q

Underwriting risk

A

a measure of the loss volatility of the types of insurance sold by an insurer

RMI 640 (7 decks)

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