Reinsurance Products 1 Flashcards
What is Fronting?
1) One insurer acts as a conduit to another and underwrites a risk but cedes all
2) The ceding or fronting reinsurer will typically receive a fee for it’s involvement to cover expenses and profit
What are some of the reasons the assuming insurer would enter into a fronting arrangement?
- It may not be licensed to write a specific line of business in a particular country
- It may be a requirement for all or certain classes to be written by a local insurer. The fronting arrangement allows insurers outside the territory to effectively cover risks in such a territory
- The credit rating may be inadequate to satisfy the insured’s minimum requirements e.g. suffered a downgrade prior to renewal
- If the fronting insurer has a higher credit rating than the assuming insurer it will be able to attract and retain more business
- There may be tax advantages in issuing the policy via the fronting insurer
This could be the case if the fronting insurer operates in a different tax jurisdiction e.g. Bermuda
What is a letter of credit?
A financial guarantee issued by a bank that permit the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against another party
What are the main areas of expertise for a reinsurance broker?
- actuarial and CAT modelling
- claims handling
- technical reinsurance accounting
- market security
- rating advisory
- capital markets & advisory
Why purchase reinsurance?
Limitation of exposure to risk or spreading of risk Avoidance of large single losses Smoothing results Increasing profitability Improving solvency margin Increasing capacity to accept risk Financial assistance Availability of expertise
What are the factors affecting an insurer’s appetite to accept risk?
Size of insurer Experience in the marketplace Available free assets Size of insurer's portfolio The range within which the business outcome/profit can be forecast with confidence
What are the types of risks to be limited?
Single large risks
Aggregation of single risks
Multi-class losses
Accumulations
How is reinsurance used as a form of financial assistance?
New business strain/financing projects
Bolstering free assets
Acquisition/Merger support
How does reinsurance provide access to expertise?
Marketing Results & monitoring Policy T&Cs Pricing Sales Sources of acquisition
Why would a reinsurer seek retrocession?
Limitation of exposure to risk
Increase capacity to accept risk
What are the disadvantages of FAC?
Unable to accept large risks/may have to decline
Costly to place
Unacceptable price and terms even if cover is available
No certainty that cover will be available when required
Time consuming to negotiate
Advantages and disadvantages of Treaty
Inflexible: once set all parties must operate within those terms
Certain : DW knows reinsurance is available
Efficient : risks are automatically reinsured
What are the items one would expect to see on an RI treaty?
Definition of a loss occurrence Retention of cedant Classes of business covered Access to risk details by reinsurer Termination terms Period of coverage Arbitrage terms Reinstatement provisions Territorial limits Names of the parties involved Exclusions to cover Rendering and settlement of accounts Stability clause Sunset clause Premium payment arrangements Classes of business covered Cover granted automatically be reinsurer Ceding commission Claims notification process Commission to brokers Profit commission due to DW and calc thereof Premium rates
What are the 10 main lists for Reinsurance Products 1?
- Brokers areas of expertise
- Why purchase reinsurance
- Factors affecting appetite for RI
- Risks to be limited
- RI as financial assistance
- RI as access to expertise
- Difference in needs between DW and RI
- Disadvantages of FAC
- Adv and disadv of Treaty
- Items on RI treaty
What are the acronyms for the 10 main lists?
- ACT MR C
- LASIIIFA
- SEAST
- SAMA
- NBA
- MR 2P 2S
- LI
- U CUNT
- ICE
- DR CAT PARTNERS SP 5C 2P
