Chapter 8 Flashcards
What is a reinsurance arangement?
business deal that two companies make for the transfer of risk from one company to the other.
define block of business
number of similar insurance policies.
Define a “case”
single policy or group of policies involved in a reinsurance arrangement
reinsurance arrangements become legally binding o the parties involved via reinsurance agreement. Define this.
treaty- document that contains the terms of the reinsurance business to be conducted, including nature of the risk transfer, reinsurance information procedures, information exchanges and the rights and duties of each party under the arrangement.
Define direct writer
ceeding company- insurance company that purchases reinsurance to transfer - cede- all or part of the risks on insurance policies the company issues
Define reinsurer
reinsurance company or an assuming company
insurer that provides reinsurance coverage by accepting or assuming insurnace risk from a direct writer
what is a retrocessionaire?
reinsurer that accepts risk from - and provides reinsurance- to another reinsurer.
what do you call the reinsurer that transfers risk to a retrocessionaiure?
retrocedent
Define solvency laws-
designed to ensure that insurance companies are financially able to meet their debts and to pay policy benefits when they come due.
define policy reserve
liability that identifies the amoun tthat, together wiht future premiums and investment earings, represents the expected amount of future benefits payable on an an insurer’s in-force business
Reinsurnace can be divided into two broad categories. Name them
assumption reinsurnace
indemnity reinsurance.
Define assumption reinsurnace
designed to permanently and entirely transfer blocks of existing insurance business from one ccompany to another.
When do life insurance companies use assumption reinsurance?
- exit a line of business by ceding the business to RI
- enter a new line of business or expand its participation in an existing line of business by assuming a line of business frm another insurer.
- complete the purchase and sale of an entire insurance company
reinsurers issue new insurance certificates known as assumption certificates to all affected policyowners. What is this?
an insurance certificate issued on an existing insurance pllicy by a reinsurer that has assumed the risk of the policy as a results of an assumption reinsurance transaction.
Define indemnity reinsurance
a direct write tansfers a stated portion of its accepted risk to a reinsurer, and the reinsurer is obligated to reimburse the direct writer only agter the direct write pays benefits for reinsured policies.
RI agrees to to pay part of of the claim obligations in exchange for a reinsurance premium. Define this
periodic payement made by a direct writer to a reinsurer as compensation for the reinsurance coverage.
Indeminity reinsurance takes one of which two forms?
- finitie reinsurance
2. traditional indemnity reinsurance.
Define Traditional indemnity reinsurance.
form of RI that is used to transfer a portion of a direct writer;s accepted risk on an ongoing basis and that is intended to be a perm transfer
- transfer risk rather than in-force business.
Tradiotional indemnity reinsurance arrangements allow for the termination of the entrire arrangement under what circumstances?
- mutual agreement
2. automatically if one of the parties fail to meet its financial obligations on time.
IS recapture permitted in assumption reinsurance or traditional indemnity reinsurance?
Traditional
What are the benefits of indemnity reinsurance for the direct writer?
- manage capacity
- ease surplus strain
- reduce fluctuations in claim payments
- obtain information and expertise.
- transfer risk of policies.
What are the limits with reinsurance and the direct writer?
- the amount of coverage it can approve or afford to pay on a single risk
- the total amount of risk it can accept.
Define underwriting capacity
the max monetary amount of risk that the company will accept on an individual insured so that unusual fluctuations in claims will not damage the ongoing solvency of the company.
What is included in an underwriting capacity limit?
- the amount of risk a direct writer transfers to reinsurers
- The direct writers retention limit
Define retention limit
a specified max amount of insurance per life that an insurer is willing to carry at its own risk without transferring some of the risks to a reinsurer.
Define financial capacity
the total monetary amount of risk the company can accept based on the investable funds it has available to write a new business.
For an insurer, what is surplus?
the amount of assets the company has over and above its policy reserves and other financial obligations.
What do you call the decrease in surplus caused by the high initial costs and reserve requirements associated with issuing new insurance policies?
surplus stain.
What do you call the decrease in potential surplus stain? what strengthens an insurer’s financial position?
surplus relief.
What is a cession?
the unit of insurance risk that a direct writer transfers to a reinsurer.
Transfers of cession are managed thorugh a cession arrangement. Define this.
identifies 1) the direct writers obligations and rights to cede risk 2) the reinsurer obligations to accept risk as well as its rights to reject risk.
Define automatic reinsurance
a reinsurance cession arrangement in which the direct writer agrees in advance to cede all risk that meet the specifications in the reinsurance agreement and the reinsurer agrees in advance to assume these risks.
Define retention limit
specified max of monetary amount of insurance per life that an insuere is willing to carry at its own risk without transferring some of the risk to RI.
Define automatic binding limit
represents the max monetary amount of risk the reinsurer will accept auto without reviewing the case
Define minimum cession
the smallest monertary amount of risk a direct writer will cede or RI will accept in auto cessasion.
Define Jumbo limit
the max allowable monetary amount of total insurance- both in force and applied for- with all the companies on any one life that qulifies for automatic cession.
- only auto reinsurance agreements are subject to jumbo limits
What is Facultive reinsurance?
the cession arrangement in which the direct writer chooses whether to cede a risk and the reinsurance chooses whether to accept that risk.
- RI performs an independent UW evaluations and has the option to reject the risk.
Define Facultative-obligatory (FAC-OB) reinsurance
cession arrangement in which the direct writer may choose to submit specific cases ot the RI and the reinsurer must accept the cases based on the direct writers’ u/w up to a stated amount- if the RI has financial capacity
- direct UW typically retains a portion of the risk
Risk-sharing arrangements generally are classified into what two kinds?
- proportional
2. nonproportional
Define proportional reinsurance
RI arranegement in which the direct writer and the reinsuere agree in advance to share premiums and claim obligations according to a specified amount
define nonproportional reinsurance?
RI arrangement in which neither the reinsurer nor the direct writer knowns in advance what share of risk the reinsurer will ultimately assume.
what is catastrophe coverage?
designed to partially protect direct writers from 1) a single catastrophic event resulting in multiple claims, 2) an annual totoal of claims ina catastrophic amount.
- criteria:
1. minim number of qualified claims
2. max total RI payout
What are some examples of single catastrophic events involving multiple life insurance claims?
- building fires
- earthquakes
- volvanic eruptions
- commercial airplane crashes
- environem,ental accidents
- epidemis
- terrorist attacks
- Nuclear and biochemical risks
- Tsunamis
What are the reinsurance-related activities between RI and direct UW from time of application to ending?
- selecting a RI partner
- Negotiating a RI agreement
- ceding or assuming specific risks
- administering in-force reinsurance
- terminating the RI agreement
Define reinsurance administration
day-to-day activities conducted by the direct writer and the RI to process and manage each risk that the direct writer ceedes automatically or submits for FAC.
The company that is primarily reponsible for administating the RI carries out what tasks?
- determine RI coverage
- itnerpret and complying with the requirement of existing RI agreements
- hanlding RI premium billing payment and payment
- admini policy changes/termination
- admini reinsurance claims
- maintain records and develop records
- ensure qulity control
- admin RI agreement termination
What is a reinsurance analyst?
any direct writer or rinsurance emmploue- who is involved in any phase of RI admnistration.
- handle activities required to conduct RI transactions between RI and direct writers.
Some RI use reinsurance marketing officers to help them establish reinsurance arrangement. What are these?
reinsurer’s employee who sells reinsurance and coordinates the marketing process for the reinsurer.
What the requiremenets of reinsurer’s underwriters?
- evaluate risk for faculative submissions
- review the direct writers UW g/l
- perform u/w audits to ensure direct u/w are following g/l
- may UW additional risks at the request of the Direct UW
What are the compliance unit’s responsibilties related to reinsurance typically include
- studying current and prosposed laws to determine their effects on the company’s business.
- educating company employees about applicable regulatory requirements and company compliance policies
- monitoring the conduct of employees and marketrs affiliated with teh insurer to ensure that they are complying with applicable regulatory requirements
- overseeing internal control procedures
- working with insurance regulators when they conduct examinations of the company
Define a reinsurance intermediary
a third party that is not employed by a direct writer or reinsurer but that acts on behalf of a direct writer or reinsurer to place reinsurance.
- used when direct writer lacks reinsurance experience
what are some examples of rinsurance acitvities involving information systems?
- negotiating reinsurance agreements
- requesting FAC coverage
- sneding UW advice and information
- checking agreements for details of implementation
- calculating the amount of risk to be cede ro assumed on a particular case
- calculating premium and claim amounts due and paid
- transfering payements
- producng numerous reports on all sorts of admin transactions
- checking the quality of every aspect of reinsurance opertations
what is ecommerce?
electronic commerce is a company’s use of the internet and computer networks to deliver infromation, perform business transactions, and facilitate the delivery of products and service to customers.
what are business-to-business ecommerce?
the elctronic transmission of data or info between organizations to perform or facilitate business transasctions.
B2B e-commerce for reinsurance often involves communications with who?
- parties to RI agreement
- reinsurance intermediaries
- venders,
- financial institutions,
- regulatory bodies
reinsurance adminsitration can involve 3 or 4 stages. Name them
- preplacement
- placement
- in-force
- termination
preplacement is the process by which a reinsurer does what?
- reviewed the request for coverage and accepts/declines risk
- establish records and reserve capacity for the case
- follow-up on reserved capacity that has been inactive for a specific period of time
define reserve capacity
the portion of resinreures financial capacity that the reinsurer sets aside to provide coverage of the risk udner the anticipated NB
preplacement continues until what occurs?
- RI coverage begins
- reinsurance denies coverage
- direct writer withdraws its request for coverage.
Direct writer request RI coverage on a particular insured or group by sending the RI a document known as….
request for coverage
In the process of establishing case files and reserving capacity the reinsurer’s employee perform what activities?
- comparing the request for coverage to the reinsurance aggrement.
- verifying the reinsurer’s retention adn financial capacity
- assessing the risk.
What are some examples of requirements found in the reinsurance agreement? think if the reuqest for coverage meets the agreement requirements.
1. age limits 2 .residentcy requirements 3. amount of coverage to be ceeded 4. underwriting classification of the insured. 5. arranging retroession as needed 6. placing the reservation capacity
What are some status codes common for reinsurers?
- reserved
- waiting
- pending
- placed
- declined
- withdrawn
- replaced
- claim
- paid
- terminated
reinsurers assign reservations a date of expiry- what is this?
the date on which the reinsurer will cancel the reservation of RI capacity if the reinsurer does not receive a cession or other placement information from the direct u/w.
a reinsurer administration system will generate . alist of outstanding cases when reviewing reserved capacity. What type of cases fall onto this list?
- date of expiry is near
2. direct UW has not send a cession, drop notice, or extenion request
what is a drop notice?
notification from the direct writer to a reinsurer staing that the direct writer no longer needs reinsurance and that it prev. request and requesting to cancel the reservation
What is an extension request?
reuqest from direct writer to extend the direct writers reservation of capcity for a specific period.
When following up on the reserved capacity, the reinsuere send a notice of expiry. What is this?
document the reinsurer sues to notify the direct writer than an offer to reinsurer is due to expire.
Define placement
process in which th edirect writer and reinsurer activate reinsurance coverage for a new automatic, fac or FAC-ob cession.
Following a placement, some reinsurers send a confirmation in what form?
a reinsurance certificate- document that notifies the direct writer that reinsurance is officially in force.
What actions may occur during the in-force state of reinsurance administration?
- direct writer pays the reinsurance premiums to the reinsurer to keep coverage in force
- reinsurance parites make adjustments to the reinsurance coverage as changes are made to the reinsured polcies.
- reinsurer receives claim notice from the direct writer, exmaines the claims, approves or rejects the claims and settles valid claims
Whos is the reporting party?
the party administering the reinsurance records and reports- provides the ifnromation needed for in-force adminsitration through a variety of reports.
What is an in-force policy report
a reinsurance report that lists all in-force reisnurance policies as of a given date and provides detailed information about each policy.
What is a policy exhibit
a reinsurance report that summarizes and reconciles the changes that have occurred in reinsured polcies during the reporting period.
What is a policy change report?
a reinsurance report that shows details for all policies that, during the reporting period have changed in a way that affects the amount of the reinsurance coverage, the reinsurance premium or allowance.
Define allowance-
ceding commissions, an amount that the reinsurer reimburses to the direct writer and that is designed to recognize the direct writers acquisition, maintenance, and otehr expenses related.
What are some examples of changes that are typically listed on a policy change report.
- terminations due to death or policy lapse
- increases or decrease in the face amount
- reinstatements.
What is a billing statement?
what is a reinsurance report that lists the amount owed by and due to each party to the reinsurance agreement.
what is included in the billing statement?
amounts owed and due into catergories,
refunds of an unearned RI premiums
policy dividends
cash surrender value reimbursements
What is a policy dividend?
which are shares of an insurer’s divisible surplus payable to the owners of participating life insurance policies at the end of a policy year or on the policy anniveristy
define reserve listing
reinsruance report that shows all policies reinsured and the reserve held for each policy.
What are some examples of changes to a reinsured policy or a block of reinsurance business that can increase or decrease the amount of risk assumed by the reinsuere.
- NEw business
- renewals
- recapture
- increases or decreases in the FA
- claims
- surrenders
- lapses
- changes in classifications
- reinstatements
- conversions
- Maturity
what will a reinsurance analyst do if the nonreporting party owns money”/
- verify the amount request by the reporting party is accurate
- arranges for payments to the reporting party
Why/how can reinsurance coverage be terminated?
- recapture of the ceded risk by the direct writer
- lapse, surrender, or expiration of the reinsured policy
- death of the insured.
What will the reinsurer verify during the termination process
- effective date of termination of RI
- policies included in the termination
- current net amount at which
- reinsurance premium refund that may be applicable
- allowances, policy dividends, or cash value for specifci vases.
What is net amount at risk (NAR)
the difference between the face amount of a life insurance policy=- and policy reverse or cash valye at the end of any given policy year.
What does the direct writer do during the termination phase?
- direct writer must pay outstanding reinsurance premiums and submit information due
- the reinsurer must process all statements from the direct writer.
if the agreement does not allow the recapture, the reinsurance analyst can do what 2 things?
- notify the direct writer that the recapture request is invalid under the terms of the agreement
- arrange for approval of the request for recapture before termining the reinsurance on the reinsurance administration records.
