Clark Flashcards

1
Q

Facultative reinsurance

A

Designed and purchased separately for each individual risk of the ceding company

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2
Q

Treaty reinsurance

A

Single contract allowing reinsurer to cover multiple risks of ceding company

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3
Q

Quota Share reinsurance

A

Percent of premium and losses ceded is the same across all risks

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4
Q

Surplus Share reinsurance

A

Designed to retain low risk policies and cede higher risk policies

Surplus percent = max[0%, min(Surplus Lines, IV - Retained Line)/IV]

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5
Q

Per risk XL treaty

A

Reinsurer assumes losses between a retention and a limit for each risk

Protects cedant from large individual claims

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6
Q

Per occurrence XL treaty

A

Reinsurer assumes losses between a retention and limit for each occurrence across multiple risks (i.e. CAT reinsurance)

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7
Q

Aggregate XL treaty

A

Reinsure assumes losses between a retention and a limit for the aggregate of total losses from ceding company

Offers frequency protection

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8
Q

Risks attaching basis

A

All policies that begin or renew during contract period are covered, regardless of when losses occur

Losses typically on PY basis, related to WP

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9
Q

Losses Occuring basis

A

All claims that occur during contract are covered, regardless of policy inception

Losses typically on AY basis, related to EP

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10
Q

Experience rating

A

Used mostly for proportional reinsurance

Uses adjusted historical experience

CAT load applied

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11
Q

Exposure rating

A

Uses current risk profile and estimated loss distributions to calcluate premium

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12
Q

Differences between surplus share treaty and excess insurance

A

Once surplus percent is established, reinsurer only responsible for that percent of loss

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13
Q

Experience rating steps

A
  1. Compile historical experience
  2. Exclude CAT/shock losses
  3. Develop and trend losses, on-level premiums and exposures
  4. Select expected non-CAT loss ratio
  5. Insert CAT loss ratio
  6. Estimate other expenses and CR
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14
Q

Sliding scale commission

A

Commission paid by reinsurer to ceding company varies with actual LR on treaty

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15
Q

Balanced sliding scale plan

A

Commission at ELR equals expected commission

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16
Q

Technical Ratio

A

Loss Ratio + Commission Ratio

17
Q

Carryforward provision

A

If actual LR exceeds LR for minimum commission, excess LR removed from minimum commission next year

18
Q

Approaches to pricing carryforward provisions

A
  1. Only apply to current year’s LR (ignores future carryforward potential)
  2. Look at expected ultimate commission ratio for a block of years together (ignores potential that contract might not be renewed)
19
Q

Exposure curve

A

Portion of loss capped at a given percent p of the insured value, relative to the total value of the loss

20
Q

For XL treaty, portion of expected ground up loss in a layer

A

P[(Retention + Limit) / IV] - P(Retention / Limit)

21
Q

Free cover

A

If there is no loss experience in the highest portion of the layer

Essentially giving away any excess coverage for which there is no loss experience

22
Q

How to eliminate free cover

A

Use experience rating for lower portion, then use exposure rating relativities to price higher portion of the layer

23
Q

Credibility for experience rating

A
  1. Expected number of claims or $ of loss during historical period
  2. Variance of projected loss costs (more stable, more credibility)
24
Q

Three layers of casualty per occurrence XL treaties

A

Working layer

Exposed excess

Clash covers

25
Issues when using RAA data
Report lag can vary by company Mix of attachment points/limits not cleanly broken out Data may include A&E claims WC -- may include inconsistent tabular discounts
26
Treating ALAE
1. Included with loss: treat as single amount when comparing to limit and retention 2. Pro-rata with loss: Calculate loss covered by treaty; same %age of ground-up ALAE also covered by treaty
27
Handling ALAE with exposure rating
28
Swing plans
If losses incurred by the contract increase, so will the premium Provisional rate is amount paid up front ELR = average LC / capped retro premium If ELR \<\> expense load ratio, plan is not in balance If provisional rate \< capped retro premium, large cash flow advantage to cedant
29
Reinstatements of property CAT covers
Allows ceding companies to "refill" treaty limit a certain number of times during policy period Can be pro-rata as to amount or as to time (time not as popular due to seasonality of CATs)
30
Payback period
Treaty limit / annual premium
31
Rate on line
Annual premium / treaty limit
32
Issue with risks attaching treaties
Potential for reinsurer to pay multiple times on same event
33
Finite risk covers
Multiple year features Loss sensitive features Property CAT covers with lower maximum losses
34
Two conditions for ceding company to consider finite risk covers reinsurance for accounting purposes
Reinsurer assumes significant insurance risk Reasonably possible that reinsurer may realize a significant loss
35
Complications in pricing finite risk covers
Reinstatement provisions Expenses Carryforwards Changes in premium/commisions by year of treaty Cancellation provisions
36
Exposure rating using ILFs
Expected loss = Prem x ELR x [(ILFa+L - ILFa) / ILFa] Exposure rate = Expected Loss x ALAE load x "Other" loads
37
Issues with capping trended losses at policy limits when experience rating
Insureds tend to purchase higher limits over time, so capping may understate future loss potential Options: Ignore, OR trend limits and losses and assume limits increase at inflation Disadvantages: Ignoring means historical limits may not reflect selected limits in the future, if trending limits, must "onlevel" premium