Non Proportional Reinsurance Flashcards
What is no proportional reinsurance?
The reinsured pays a fixed premium to the reinsurer and receives payment for all claims that exceed a specified amount (deductible) up to a certain limit (the ceiling).
What is the ultimate net loss?
It’s the loss suffered by the primary insurer after the deduction of any:
Reimbursements
Reinsurance recoveries from prior reinsurance contracts.
Why would a reinsured want to divide cover into layers Name three
- UW policy - Reinsurers have specific preferences on types of layers they want to participate in.
- Pricing accuracy - Pricing is carried out for each layer which, generally from an UW point of view, results in a more appropriate price than a price that seeks to cover the whole risk. This is because sometimes very large losses that have not been occurred in the past but could be in the future may be under-priced or even left out of the pricing calc for a single layer cover. If the cover is broken down into smaller layers, the risk of each layer has to be priced explicitly.
- Accumulation control - A NAT CAT event in particular affects the portfolios of several reinsureds. A reinsurer wants to control their potential accumulation exposure and will try to share the losses with other reinsurers.
What are the three types of excess of loss contracts?
- Excess of loss contracts that cover individual losses from a single event.
- Excess of loss contracts that cover accumulated losses from a single event.
- Excess of loss contracts that cover both individual losses and accumulated losses from a single event.
What is XL per risk?
It’s designed to provide coverage for individual losses arising from a single event, once these losses exceed a predetermined threshold.
When is XL per risk used?
Commonly used for large scale incidents such as major industrial accidents, large fires in commercial properties, or significant liability claims arising from corporate mishaps.
Name 2 advantages and 2 disadvantages for XL per risk.
Advantages
1. Provides significant financial relief in the event of a major single incident.
2. Allows insurers to manage their risk exposure more effectively.
Disadvantages
1. Coverage is limited to single events, not addressing cumulative small-scale losses.
What is the impact on insurer’s financial health on XL per risk?
The structure is crucial in protecting insurers from the potentially devasting financial impact of a massive single event claim, thereby ensuring solvency and maintaining financial stability.
What is XL per event?
This reinsurance model addresses losses that accumulate from a single event impacting more than one insured risk or policy. It’s designed to provide coverage when aggregated claims from such an event exceed a specified limit.
When is XL per event?
Used for events like large scale industrial fire or regional infrastructure failures that affect multiple policyholders simultaneously.
Name 2 advantages and 2 disadvantages for XL per event?
Advantages
1. Offers comprehensive coverage per risk and got aggregated risks.
2. Mitigates the financial impact of events affecting multiple policies.
Disadvantages
1. Higher premiums due to the broader nature of the coverage.
2. Complexity in assessing and aggregating losses from multiple policies.
what is the impact on insurer’s financial health for XL per event?
Plays a pivotal role in protecting insurers against the cumulative impact of a single events on multiple policies, thereby safeguarding against significant financial losses.
What is CAT XL?
CAT XL is specifically tailored to catastrophic events impacting a vast number of policies across a large geographical area. It provides coverage once the aggregate losses from such catastrophic events exceed the insurer’s retention limit.
When is CAT XL used?
Ideal for large scale natural disasters like hurricanes, floods, or widespread wildfires that result in substantial and widespread damage.
Name 2 advantages and 2 disadvantages for CAT XL
Advantages
1. Offers extensive coverage for large scale catastrophes.
2. Crucial in maintaining insurer solvency in face of catastrophic events.
Disadvantages
1. High cost of premiums due to the extensive coverage and high risk.
2. Complexity in assessing and processing a large volume of claims.
What is the impact on insurer’s financial health for CAT XL?
CAT XL is essential in mitigating the potentially ruinous financial impact of catastrophic events on insurance companies, ensuring their continued operation post disaster,
What is stop loss?
Provide coverage for aggregate losses incurred over a specified period, typically a year, regardless of the number and type of events causing these losses. The reinsurer covers losses that exceed the agreed threshold up to a defined limit, both often defined as percentage of premium income.
When is stop loss used?
Used to protect against a high frequency of varied losses, ranging from minor to moderate, occurring within a policy year.
Name 2 advantages and 2 disadvantages for stop loss
Advantage
1. Ensures a cap on the total annual losses, providing budget predictability.
2. Diversifies risk across a range of loss event, not tied to specific incidents.
Disadvantages
1. Relatively higher premiums due to the broad nature of the coverage
2. It may not be cost effective in one given year if the frequency of claims is lower than anticipated.
What is the impact on insurer’s financial health for stop loss?
Vital for maintaining financial equilibrium, particularly for insurers with a diverse portfolio susceptible to various loss events over a year.
What is the difference between working excess of loss per risk and excess of loss per risk?
‘Working’ is often included to make clear that the treaty covers losses from a single loss unit.
What is ‘risk’ commonly defined as?
It’s defined as the aggregate of insured values that it is reasonable to expect might all be affected by an individual outbreak of fire. e.g if there are two semi detached houses, a fire is likely to affect both houses.
With PI, how do reinsurers usually define the date of liability?
Usually on an acts committed basis - When the liability occurred. e.g structural engineer made an incorrect calc.
