Pro RATA 1

Question 1

Q

Answer 1

A

Question 2

Gross v Net

Answer 2

Gross - reinsurance contract responds first to loss before other structures

Net - reinsurance contract responds after another reinsurance contract (other contract inures to the benefit of this contract)

Question 3

Calculation reminders

Answer 3

Per occurrence cap – need to apply total loss to per occurrence cap first, then calculate the ceded loss amount

Limit cap – need to double check only the policies with limits below the QS policy limit are applied to the contract

Question 4

Ceding Commission Types

Answer 4

(1) Flat Commission – percentage applied to the ceded premium

Question 5

Subject Premium

Answer 5

Amount of premium applied to the reinsurance contract (i.e. homeowners policy premium for a QS policy)

Question 6

Underwriting Expenses

Answer 6

Includes agent commissions, general expenses like state fees, premium taxes, etc. — usually ends up being 25%-35% of premium

Question 7

PHS Relief

Answer 7

Ceded UEPR * Ceding Commission % at point of inception

Will vary based on amount of incoming UEP, Ceding Commission %, Cession %; PHS relief will be reversed when contract is cancelled so you need to consider how to come off the QS (ideally gradually as you improve PHS organically)

Useful to write business in hard markets (high prices -> high UEPR)

Question 8

Leverage Ratio

Answer 8

Net Written Premium / Surplus

Ideally this ratio is 2:1 or lower (no more than 3:1)

Question 9

QS Response Limits

Answer 9

Per Occurrence
Per Occurrence, Per Policy – most common to ensure adequate protection
Per Insured

Question 10

QS vs XOL QS

Answer 10

Not technically XOL but you can write a QS as excess with retention

Question 11

QS to increase primary policy limit

Answer 11

QS can be written to provide limit for liability policies (esp umbrella policies); goal is not PHS relief but providing policy limit

Question 12

QS to provide cat protection

Answer 12

QS can be very effective on CAT protection bc it is first dollar loss but also is very costly to build cat capacity this way

Question 13

QS to stabilize results

Answer 13

Is not effective to stabilize for a particular LOB but can be effective net of all LOBs (ex 100% on umbrella that have bad results)

Question 14

QS Reinsurance Function Effectiveness

Answer 14

1. Increasing Primary Policy Volume or Leverage — VERY EFFECTIVE
2. Increase Primary Policy Limit — SOMEWHAT EFFECTIVE
3. Stabilization of Net Results — SOMEWHAT EFFECTIVE
4. Increase in PHS — VERY EFFECTIVE (maybe)
5. CAT Protection — SOMEWHAT EFFECTIVE

Question 15

Surplus Relief QS vs Policy Limit Capacity

Answer 15

Surplus Relief – need large amount of ceded premium, high cession %, ceding commission is crucial, limited to no property cat exposure

Policy Limit QS – often LOB specific, modest ceded premium, modest ceding commission, % cession is very important, carves out policies from the larger portfolio