Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Risk Financing > Module 6 > Flashcards

Module 6 Flashcards

1
Q

Reinsurance

A

transfer of risk from one insurer to another

other insurer agrees to indemnify for some or all of financial consequences of certain loss exposures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Primary Insurer

A

the insurer transferring the risk to the reinsurer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Reinsurer

A

The insurer that assumes some or all of the potential consequences of loss exposures of the primary insurer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Reinsurance Agreement

A

.Contract between primary insurer and reinsurer that sets out details of reinsurance and type of accounts to be transferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Insurance Risk

A

uncertainty about the adequacy of insurance premiums to pay losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Retentions

A

the amount retained by the primary insurer to reinsurance transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Reinsurance premium

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

ceding commission

A

The part paid by the reinsurer to the primary insurere to cover part or all of the primary insurer’s policy acquisition expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Retrocession

A

.reinsurance agreement where reinsurere transfere all or part of the reinsurance risk it has asssumed or will assume to another reinsurer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Retrocedent

A

.the reinsurere that transfers or cedes all or part to another reinsurere

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Retrocessionaire

A

the reinsurere that assumes all or part of reinsurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Line

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Surplus relief

A

a replenisment of policy holder’s surpluse provided by ceding commission paid to the priamry insurer by the reinsurer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Policyholder’s surplus

A

an insurer’s total assets minus its total liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Portfolio reinsurance

A

reinsurance that transfers to the reinsurere liability for an entire type of insurance, territory or book of business af ther trimary insurer has issued the policies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

novation

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Describe the purpose of retrocession

A

retrocedent transfer all or part of a reinsurance risk to another reinsurer, the retrocessionaire

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Describe some of the practical business goals that reinsurance can help an insurer achieve

A

insuring large exposures

protecting policyholders’s surplus from adverse loss experience

financing insurer’s growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

List all six principal functions that reinsurance performs for primary insurers

A

increase large l ine capacity

provide catastrophe protection

stabilize loss experience

provide surpluse relief

facilitate withdrawal from a market segment

provide underwriting guidance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Describe how increasing its large-line capacity allows an insurer to grow

A

allows a primary insurere to assume more significant risks than its financial condition and regulations would otherwise permit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Name the three ways in which a primary insurer can use reinsurance to stabilize its loss experience

A

limit liability for single loss exposure

limit liability for several loss exposures affected by a common event

limit liability for loss exposures that aggregate claims over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Explain how a primary insurer may completely eliminate the liabilities it has assumed under the policies it has issued

A

through novation - one insurer/reinsurer is substituted for another

not considered portfolio reinsurance because the substitute insurer assumes the direct obligations to insureds covered by the underlying insurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Professional reinsurer

A

primary business is serving reinsurance needs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Direct writing reinsurer

A

a professional insurere whose employees deal directly with primary insurers (as opposed to reinsurance intermediaries)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Reinsurance intermediary

A

works with primary insurers to develop reinsurance programs and that negotiates contractes of reinsurance between primary insurer and reinsurers.

recives commission for placement and other services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Reinsurance pools, syndicates and associations

A

groups of insureres that share the loss exposures of the group usually through reinsurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Reinsurance pool

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Syndicate

A

a group of insureres or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a signle insurere or reinsurere. Each syndicate member accpets predetermined shares of premiums, losses, expenses and profts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Association

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Identify the three sources from which reinsurance may be purchased

A

professional reinsureres

reinsurance departments of primary insurers

Reinsurance pools, syndicates, associations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Describe the role of a reinsurance intermediary

A

.represent a primary insurer

work with that insurer to design a reinsurance program that is then placed with a reinsurer or reinsurers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Name the factors a primary insurer should evaluate when considering a reinsurer

A

claim paying ability

reputation

management competence

34
Q

Describe the function of reinsurance pools, syndicates and associations

A

provide member companies with the opportunity to participate in a line of insurance with a limited amount of capital without having to employ the specialists needed for such a venture

35
Q

Treaty reinsurance

A

reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insureres individual loss exposures that fall wiht the treaty are automatically reinsured

36
Q

Facultative reinsurance

A

reinsurance of indvidual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer and the reinsurere can accpet or reject any loss exposures submitted

37
Q

Adverse selection

A

the decision to reinsure those loss exposures that have an increased probailiyt of loss because the retneation of those loss exposures is undesirable.

38
Q

Facultative certifiacte of reinsurance

A

an agreement that defines the tuerms of the facultativ reinsurance coverage on a specific loss exposure

39
Q

Contrast treaty reinsurance and facultative reinsurance

A

treaty - reinsurer takes all loss exposures that fiall within the treaty

facultative - primary insurer negotiates a spearate agreement for each loss exposure that it wan’ts to reinsure

40
Q

explain why primary insurers usually make treaty reinsurance agreement so their underwriters do not have to exercise discretion in using reinsurance

A

treaty reinsurance agreements prevent adverse selection

41
Q

Identify the four functions of facultative reinsurance

A

provides large line capacity for los exposures that exceed the limts of treaty reinsurance agreements

reduce primary insurers exposure in a given geographic area

insure a loss exposure with atypical hazrd characteristics and thereby maintain the favorable loss experience of the primary insurer’s treaty reinsurance and any associated profit sharing agreement

42
Q

Pro rata reinsurance

A

proportionately share amounts of insurance, policy premiums and losses, including loss adjustment expenses

43
Q

Loss adjustment expense

A

the expense that an insurere incurs to investigate, defend and settle claims

44
Q

flat commission

A

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

45
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

46
Q

sliding scale commisison

A

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

47
Q

quota share reinsurance

A

.type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums and losses

48
Q

loss ratio

A

a ration that measures losses and LAE against earned premiums and that reflects the percentage of premiums being consumed by losses

49
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

50
Q

variable quota share treaty

A

a quota share reinsurance treate in which the cession percentage retention varies based on specified predetermined criteria such as the amount of insurance needed

51
Q

surpluse share reinsurance

A

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

52
Q

bordereau

A

a report the primary insurer provides periodically to the reinsurer that contains a history of all loss exposures reinsured under the treaty

53
Q

line guide

A

a document that provides the minimum and maximum line a primary insurer can retain on a loss exposure

54
Q

excess of loss reinsurance (nonproportional reinsurance

A

a type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount

55
Q

attachment point

A

the dollar amount above which the reinsurer responds to losses

56
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

57
Q

working cover

A

an excess of loss reinsurance agreement with a low attachment point

58
Q

per risk excess of loss reinsurance

A

.covers property insurance and applies speartely to each loss occurring to each risk

59
Q

loss occurrence clause

A

a reinsurance agreement clause that defines the scope of catastrophic occurrence for the purposes of the agreement.

60
Q

per policy excess of loss reinsurance

A

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

61
Q

per occurrence excess of loss reinsurance

A

a type of excess of loss resinurance 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

62
Q

clash cover

A

type of per occurrence excess of loss reinsurance for liability loss exposures that protects the primary insurere against aggregations of losses from one occurrence that affects several insureds or several types of insurance

63
Q

extracontractual damages

A

damages awarded to the insured as a result of the insurer’s improperly handling a claim

64
Q

identify the two principal approaches that reinsureres use to allocate losses

A

treaty reinsurance

facultative reinsurance

65
Q

describe the distinguising charactistic of quoat share insurance

A

.primary insurere and reinsurer use a fixed percentage in sharing the amounts of insurance , policy premiums and losses (including LAE)

66
Q

Explain how the amount of insurance., the premium and losses are allocated under a pro rata reinsurance agreement.

A

divided between the primary insurere and the reinsurer in the same propotions as the risk

67
Q

Describe the distinguishing characterist of surplus share reinsurance

A

.when an underlying policy’s total amount of insurance exceeds stipulated dollar amount, or line, the reinsurere assumes the surpluse share of the amount of insurance (the difference between the insurer’s line and the limit)

68
Q

Describe the circumstances in which a reinsurer will respond to a loss under an excess of loss reinsurance agreement.

A

the reinsurere responds to a loss only when the loss exceeds the prmary insurer’s retention (the attachment point)

69
Q

Describe the two most common approaches to handling loss adjustment expenses under an excess of loss reinsurance agreement

A

prorate the loss adjustement expenses between primary insurere and reinsurere based on same precentage share that each is responsible for the loss

add loss adjustment expenses to the amount of the loss when applying the attachment point of the excess of loss reinsurance agreement

70
Q

describe the application of per risk excess of loss reinsurance

A

applies separately to EACH LOSS occuring to EACH RISK with the primary insurere usually determing what constitutes each risk

71
Q

describe how a loss occurrence clause functions within a catastrophe excess of loss reinsurance agreement

A

.specifies a time period in hours during which the primary insurer’s losses from the same catastrophic occurrence can be aggregated and applied to the attachment poitn and reinsurance limits of the catastrphe excess of loss reinsurance agreement

72 hours for hurricane

168 hours for earthquake

72
Q

Describe the purpose of catastrophe excess of loss reinsurance

A

protects the primary insurer from an accumulation of retained losses that arise from a single catstrophic event

73
Q

Explain how per policy excess of loss reinsurance functions

A

primarily with liability insurance

applies the attachment point and the reinsurance limit separately to each insurance policy issued, regardless of number of losses occurring under the policy

74
Q

Explain how occurence excess of loss reinsurance fucntions

A

applies the attachment point and the reinsurance limit to the total losses that occur from a single event

75
Q

Describe the types of liability insurance for which clash cover is useful

A

liability insurance in which the loss adjustement expenses are likely to be very high and the underlying per occurrence reinsurance limits include these expenses rather than proprate them.

76
Q

Describe the type of losses that aggregate excess of loss reinsurance covers

A

used for property or liability insurance and covers aggregated losses that exceed the attachment point and occur over a stated period, usually one year

77
Q

cut through endorsement

A

an endorsement that provides that in the event of the insolvency of the primary insruer the reinsurer directly assumees the obligations of the primary insurer

78
Q

identify situations in which a risk manager would deal directly with a reinsurer

A

a reinsurere takes the place of an insurere as a result of portfolio reinsurance arrangement

a reinsurere takes the place of an insurerre through a cut-through ensoresment

an org establishes a subsidiary that insurers or reinsures the org’s loss exposures

an org purchases reinsurance for a pool of which it is a member

a reinsurer or several reinsurers team up with an insurer or several insurers to provide coverage

79
Q

explain why a risk manager whose insurance plan has been reinsured through a portfolio insurance arrangement should be aware of details of the transaction

A

to ascertain that coverage is maintained and that the reinsurer is at least as financially sound as the retiring insurer

80
Q

identify the factors a risk manager should consider when reinsuring risk through a pool

A

financial strength

integrity

operating efficiency of pool’s reinsurer

Risk Financing (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions