Unit 1 Review- Reinsurance, Surplus Line, Self-Insurer Flashcards
What is Reinsurance?
An arrangement by which an insurance company transfers a portion of an assumed risk to another insurer.
Why does Reinsurance take place and what does it enable?
To limit the loss any one insurer would face should a very large claim become payable. It also enables a company to meet particular objectives, such as favorable underwriting or mortality results.
What is the company transferring the risk called?
The ceding company.
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What is the company assuming the risk called?
The reinsurer.
What is the portion of the risk that the ceding insurer retains called? (2 options)
*a ceding company is the company doing the transferring
The net retention (or net line).
What does Treaty reinsurance involve?
An automatic sharing of the risks assumed.
In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called what?
The primary insurer
What is a captive insurer?
An insurer that is established and owned by a parent firm for the purpose of insuring the parent firm’s loss.
What does Surplus Lines Insurance refer to?
The nontraditional insurance market.
Why does a person seek coverage through a surplus lines broker? Give examples.
In order to secure coverage for high or unusual risks (i.e., hole-in-one insurance or nonappearance coverage).
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How does someone qualify for surplus lines coverage?
An effort has to be made to secure coverage in the authorized market. An individual may not attempt to secure coverage just because it may be less expensive
What is a self-insurer?
Rather than transfer risk to an insurance company, a self-insurer establishes a self-funded plan to cover potential losses.
What do large companies use self-funded plans for?
Funding pension plans and some health insurance plans.
What does a self-insurer look to an insurance company for and who bears the amount of loss?
To provide insurance above a specified maximum level of loss. The self-insurer will bear the amount of loss below that maximum amount.
