Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

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
Direct writing reinsurer
a professional insurere whose employees deal directly with primary insurers (as opposed to reinsurance intermediaries)
26
Reinsurance intermediary
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
27
Reinsurance pools, syndicates and associations
groups of insureres that share the loss exposures of the group usually through reinsurance
28
Reinsurance pool
.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
29
Syndicate
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
30
Association
An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the organization
31
Identify the three sources from which reinsurance may be purchased
professional reinsureres reinsurance departments of primary insurers Reinsurance pools, syndicates, associations
32
Describe the role of a reinsurance intermediary
.represent a primary insurer work with that insurer to design a reinsurance program that is then placed with a reinsurer or reinsurers
33
Name the factors a primary insurer should evaluate when considering a reinsurer
claim paying ability reputation management competence
34
Describe the function of reinsurance pools, syndicates and associations
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
Treaty reinsurance
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
Facultative reinsurance
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
Adverse selection
the decision to reinsure those loss exposures that have an increased probailiyt of loss because the retneation of those loss exposures is undesirable.
38
Facultative certifiacte of reinsurance
an agreement that defines the tuerms of the facultativ reinsurance coverage on a specific loss exposure
39
Contrast treaty reinsurance and facultative reinsurance
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
explain why primary insurers usually make treaty reinsurance agreement so their underwriters do not have to exercise discretion in using reinsurance
treaty reinsurance agreements prevent adverse selection
41
Identify the four functions of facultative reinsurance
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
Pro rata reinsurance
proportionately share amounts of insurance, policy premiums and losses, including loss adjustment expenses
43
Loss adjustment expense
the expense that an insurere incurs to investigate, defend and settle claims
44
flat commission
a ceding commission that is a fixed percentage of the ceded premiums
45
profit sharing commission
a ceding commission that is contingent on the reinsurer realizing a predetermined percentage of excess profit on ceded loss exposures
46
sliding scale commisison
ceding commission based on a formula that adjusts the commission according to the profitability of the reinsurance agreement.
47
quota share reinsurance
.type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums and losses
48
loss ratio
a ration that measures losses and LAE against earned premiums and that reflects the percentage of premiums being consumed by losses
49
catastrophe excess of loss reinsurance
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
variable quota share treaty
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
surpluse share reinsurance
a type of pro rata insurance in which policies covered are those whose amount of insurance exceeds a stipulated dollar amount or line
52
bordereau
a report the primary insurer provides periodically to the reinsurer that contains a history of all loss exposures reinsured under the treaty
53
line guide
a document that provides the minimum and maximum line a primary insurer can retain on a loss exposure
54
excess of loss reinsurance (nonproportional reinsurance
a type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount
55
attachment point
the dollar amount above which the reinsurer responds to losses
56
subject premium
the premium the primary insurer charges on its underlying policies and to which a rate is applied to determine the reinsurance premium
57
working cover
an excess of loss reinsurance agreement with a low attachment point
58
per risk excess of loss reinsurance
.covers property insurance and applies speartely to each loss occurring to each risk
59
loss occurrence clause
a reinsurance agreement clause that defines the scope of catastrophic occurrence for the purposes of the agreement.
60
per policy excess of loss reinsurance
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
per occurrence excess of loss reinsurance
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
clash cover
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
extracontractual damages
damages awarded to the insured as a result of the insurer's improperly handling a claim
64
identify the two principal approaches that reinsureres use to allocate losses
treaty reinsurance facultative reinsurance
65
describe the distinguising charactistic of quoat share insurance
.primary insurere and reinsurer use a fixed percentage in sharing the amounts of insurance , policy premiums and losses (including LAE)
66
Explain how the amount of insurance., the premium and losses are allocated under a pro rata reinsurance agreement.
divided between the primary insurere and the reinsurer in the same propotions as the risk
67
Describe the distinguishing characterist of surplus share reinsurance
.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
Describe the circumstances in which a reinsurer will respond to a loss under an excess of loss reinsurance agreement.
the reinsurere responds to a loss only when the loss exceeds the prmary insurer's retention (the attachment point)
69
Describe the two most common approaches to handling loss adjustment expenses under an excess of loss reinsurance agreement
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
describe the application of per risk excess of loss reinsurance
applies separately to EACH LOSS occuring to EACH RISK with the primary insurere usually determing what constitutes each risk
71
describe how a loss occurrence clause functions within a catastrophe excess of loss reinsurance agreement
.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
Describe the purpose of catastrophe excess of loss reinsurance
protects the primary insurer from an accumulation of retained losses that arise from a single catstrophic event
73
Explain how per policy excess of loss reinsurance functions
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
Explain how occurence excess of loss reinsurance fucntions
applies the attachment point and the reinsurance limit to the total losses that occur from a single event
75
Describe the types of liability insurance for which clash cover is useful
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
Describe the type of losses that aggregate excess of loss reinsurance covers
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
cut through endorsement
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
identify situations in which a risk manager would deal directly with a reinsurer
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
explain why a risk manager whose insurance plan has been reinsured through a portfolio insurance arrangement should be aware of details of the transaction
to ascertain that coverage is maintained and that the reinsurer is at least as financially sound as the retiring insurer
80
identify the factors a risk manager should consider when reinsuring risk through a pool
financial strength integrity operating efficiency of pool's reinsurer

Risk Financing (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions