Reinsurance

Question 1

Need for reinsruance

Answer 1

1. Capital relief
2. Underwriting expertise
3. Claim expertise
4. Capacity to write new risks
5. Ability to offer complete solutions to customers
6. Improve financial rating
7. Protection against “known known”, “Known unknowns”, “Unknown Unknowns”

Question 2

Facultative reinsurance

Answer 2

An arrangement in which individual risks (single policies) are offered by the ceding insurer to a re insurer, who has the right (faculty) to accept or reject each risk

Question 3

Proportional treaties

Answer 3

Premiums and claims are shared between cedants and reinsurers in the same proportion

Question 4

Two types of proportional treaties

Answer 4

Surplus and Quota share

Question 5

Surplus share

Answer 5

All amounts greater than retention is ceded up to the limit of the Treaty and distribution of risk is determined at time of underwriting

Question 6

catastrophe

Answer 6

a loss involving two or more insured risks directly involved in the same event

Question 7

Rate on Line (ROL)

Answer 7

Premium paid for the layer divided by the limit of the layer

Question 8

Ceding commission

Answer 8

An allowance (usually a percentage of the reinsurance premium) made by the reinsurer for part or all of a ceding company’s acquisition and other costs

Question 9

Sliding scale commission

Answer 9

a commission paid to the reinsured which is determined by the loss ratio

Question 10

Probable Maximum Loss (PML)

Answer 10

An estimate of the likelihood that a catastrophic loss will be met or exceeded within a specified time

Question 11

Maximum Possible Loss

Answer 11

The worst loss that could possibly occur because of a single event

Question 12

Commutation

Answer 12

An agreement between a ceding insurer and the reinsurer that provides for the valuation, payment, and complete discharge of all obligations between the parties under a particular reinsurance contract

Question 13

Increased limit factors

Answer 13

Multiplicative factors that are applied to rates or premiums for “basic” limits of coverage, to determine premiums for higher limits of coverage

Question 14

Indexation Clause

Answer 14

A reinsurance tool which attempts to more equally share the burden of inflation between insurer and reinsurer

Question 15

Loss Portfolio Transfer (Run-off Cover)

Answer 15

A financial reinsurance transaction in which loss obligations that are already incurred and will ultimately be paid are ceded to a reinsurer

Question 16

Event limit

Answer 16

The maximum a reinsurer will pay on a single event under a proportional or XOL treaty