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Lm2 > 3 Reinsurance > Flashcards

3 Reinsurance Flashcards

1
Q

Why insurers buy reinsurance?

A

Risk transfer
Peace of mind
Balancing peaks and troughs
Releasing capacity

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2
Q

Why firms sell reinsurance?

A

Accessing business not otherwise available (licensing)

Try out a class of business on a trial basis

Pure business preference (Munich re/Swiss re)

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3
Q

2 types of reinsurance

A

Fac - single situation, one risk

Treaty - portfolio

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4
Q

Full follow clause

what are the caveats

A

Insurer makes claims decisions, doesn’t even have to inform the reinsurer, reinsurer just pays

caveats
Ex gratia settlement/paying claim on goodwill. If not included in cover, reinsurer can decline to reimburse

if reinsurer argues settlement wasn’t made within T&Cs of policy

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5
Q

Claims coop clause

A

Insurer keeps reinsurer appraised of loss scenario but doesn’t have rights to intervene

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6
Q

Claims control clause

A

Reinsurers preferred option

Reinsurer has full decision making

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7
Q

Cede

A

The Insurer risk sharing w reinsurer

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8
Q

Cession

A

Share of risk passed to reinsurer

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9
Q

Collecting note

A

Doc used to present claim for XoL reinsurance, can be supported by a bordereaux

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10
Q

Non proportional r/i

A

Premium & claims don’t have a direct correlation. Premium set in direct portion, claims dealt with on financial basis. XoL and stop loss an eg for this

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11
Q

Proportional reinsurance

A

Claims shared between insurer and reinsurer in pre-agreed % portions. Surplus treat and Quota share

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12
Q

Reinstatement

A

In non proportional r/i, a layer can be restated with additional premium subject to a cap on how many times losses are paid. Brings policy back to life.

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13
Q

Reinstatement premium

A

Premium paid for reinstatement layer

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14
Q

Fac meaning

A

Optional, not compulsory

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15
Q

Why buy fac

A

You can buy for certain perils (eg for cat, earthquakes). Only responds to one risk.

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16
Q

Lower layers
Higher layers

A

Working layers - more expensive. More likely to have claims.

Catastrophe layers - cheaper

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17
Q

Combined ratio

A

% of premium income represented by claims and operating costs (+ cost of r/i). As long as lower than 100%, insurer is making a profit.

18
Q

Loss ratio

A

% claims vs premium

19
Q

Stop loss r/i

A

Structured in layers (XoL). Stop loss cover protects insurers in event of loss (operating expenses > premium). Triggered when insurers combined ratio exceeds certain point

20
Q

Benefit of QS for reinsurer

A

Everything shared so insurer can’t negatively select (opposite to fac obligatory ri)

21
Q

100% Qs also known as

A

Fronting arrangement (100% of risk)

22
Q

Surplus lines treaty

A

More XoL
Buys a surplus line, usually has a max amount
Eg five line surplus treaty = five lines of £x each added to their retained line
Premium proportionally shared

23
Q

Surplus treaty

A

Insurer covers % of limit so pays % of a claim

24
Q

If a reinsurance claim, what steps first

A
  1. Does it fall under standard proportional r/i ? Or any fac r/i?
  2. Is there any non prop r/i? Eg XL
25
Q

Government based reinsurance programmes

schemes ? Us/uk/France-australia

A

Providing terrorist related reinsurance cover for commercial market

USD - TRIA/TRIPRA - terrorism risk insurance act
Tripra 2015 - terrorism risk insurance program reauthorisation act of 2015 (&2019). Insurers pay then claim off of government

Uk- pool re
France - gareat
Australia - arpc

26
Q

Flood insurance uk

A

Flood re scheme - every insurer offers home insurance pays into scheme so uk insurers can continue offering policyholders flood insurance but goV reinsurers flood element. Insurer pays then claims from fund

27
Q

London reinsurance market

A

Major but not largest

28
Q

Types of r/i

A

Fac, proportional treaty, non proportional treaty

29
Q

Proportional r/i

A

Reinsurer shares risk in equal proportions up to cap

30
Q

Proportional r/I types

A

QS, Surplus lines

31
Q

XoL

A

Non prop - do not share claims/premiums in a proportion

Buy in layers

32
Q

Stop loss r/i

A

Protects insurers loss ratio

33
Q

Order of claim in r/i

A

Fac first
Proportional
Non proportional

34
Q

How much Lloyd’s annual premium income is reinsurance business

A

35%

35
Q

Fac obligatory reinsurance

A

Insurer can choose whether it wants to cede certain risks falling inside a set of criteria. Optional for insurer. Obligatory for reinsurer.

Unbalanced, negative selection

36
Q

Non proportional reinsurance premium

Premium USD 100k adjustable at 5% where OGPI original gross premium income is USD 3m

A

USD 3m * 5% - USD 100k payable at end of policy

37
Q

Proportional reinsurances

A

Premium that original insurer receives correlated to what reinsurers receive.

Quota share or surplus treaty reinsurance

38
Q

30% QS means

A

30% of each risk, 30% of all premiums, 30% of all claims

39
Q

100% QS otherwise called

A

fronting arrangement

40
Q

Surplus lines treaty

A

Buying x amount of r/i cover over your retained line to write a risk

eg USD 30m line with USD 5m net retention you would buy a five-line surplus treaty
(USD 5 x 5 = USD 25m)

You don’t have to use all your lines eg if you wanted to just write USD 15m you could do USD 5m net + two of your five lines surplus for USD 10m. However premium shared proportionally so 1/3 + 2/3

41
Q

Underwriter has 10 line surplus treaty with USD 1m net, and writes USD 6.25m. What claim % will reinsurers cover?

A

reinsurance = USD 5.25m

reinsurance = 5.25/6.25 = 84% of claims

42
Q

why reinsurers interested what other reinsurance arrangements a pedant has

A

general rule the most specific or relevant reinsurance contract responds first

Lm2 (9 decks)

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