Reinsurance & Underwriting

Question 1

Why doesn’t pricing of insurance products take into account all of the relevant factors of an individual?

Answer 1

• Insurance involves the pooling of risks
• The costs make it prohibitive
• Health assessments aren’t always perfect

Question 2

What does the underwriting process involve?

Answer 2

1. Class selection
2. Evaluate the proposal and any other medical information that was required
3. Consider intensity and incidence of risk and translate it into special terms

Question 3

What are the main sources of information or underwriting?

Answer 3

1. Proposal form
2. Primary Medical attendants report
3. Specific Conditions Questionnaire
4. Medical examination
5. Specialist medical report
6. Aids supplementary questionnaire
7. Reinsurers underwriting manual
8. Financial Questionnaire

Question 4

What are ways of dealing with the identified extra risk

Answer 4

1. Extra premium
2. Debt
3. Exclusions
4. Defer the proposal
5. Decline the proposal
6. Offer an alternative contract

Question 5

What is AIDS underwriting

Answer 5

This is used to group the applicants into one of four groups:

1) Sick with Aids
2) HIV positive
3) At risk
4) Clear

Question 6

What are the main problems with Aids testing?

Answer 6

• It’s costly
• It’s not conclusive of negative
• It can be unacceptable by the public

Question 7

What is a Primary Medical attendants report?

Answer 7

This is requested from the insured’s doctor and it requests any past illnesses and if they are undergoing any medical treatment

Question 8

What is the Specialist medical report

Answer 8

This includes things such as blood tests and ECG’s

Question 9

What is the reinsurers underwriting manual?

Answer 9

These are produced by reinsurers and they contain a section for every condition
They indicate:
-Nature of the condition
-Information required
-description of how the medical information can be translated into appropriate measures of risk

Question 10

What is reinsurance?

Answer 10

This involves the passing over of a risk to a third party which in this case is a reinsurance company

Question 11

What are the reasons for reinsurance?

Answer 11

1. To reduce fluctuations in claims to an affordable level
2. It gives access to the reinsurers technical assistance
3. It reduces new business strains and allows for more business to be written
4. It allows reciprocity
5. It can be cost effective
6. It has tax advantages
7. It can allow the company to accept bigger policies with no delay

Question 12

What is proportional reinsurance and what are the two types?

Answer 12

This is where the contract is shared according to a proportion there is original terms reinsurance and risk premium reinsurance

Question 13

What are the two types of original terms assurance?

Answer 13

1. Quota Share reinsurance- Risk is split according to a predetermined level and it’s that percentage that can be recovered
2. Individual Surplus - Any risk that is above the retention limit is passed on to the reinsurer

Question 14

What is risk premium reinsurance and how is calculated?

Answer 14

The reinsurer takes a proportion of the risk element which is the difference between the sum assured and the reserves(sum at risk)
= X% x (S-V)

Question 15

What are the non proportional reinsurance methods?

Answer 15

1) Catastrophe loss
2) Excess of loss reinsurance
3) Stop loss reinsurance

Question 16

What is catastrophe reinsurance

Answer 16

This provides cover when more than a certain number of lives were involved in an accident that causing death.
e.g 90% of claims above catastrophe point up to predetermined maximum

Question 17

What is stop loss reinsurance?

Answer 17

This is used to cover the insurer against poor claims experience in a portfolio as compared to just the individual contracts.
For example it’ll cover 90% of claims that fall between 110% and 140% of the expected amount
Starts paying at excess point and stops paying at the upper limit