3 Reinsurance

Question 1

Why insurers buy reinsurance?

Answer 1

Risk transfer
Peace of mind
Balancing peaks and troughs
Releasing capacity

Question 2

Why firms sell reinsurance?

Answer 2

Accessing business not otherwise available (licensing)

Try out a class of business on a trial basis

Pure business preference (Munich re/Swiss re)

Question 3

2 types of reinsurance

Answer 3

Fac - single situation, one risk

Treaty - portfolio

Question 4

Full follow clause

what are the caveats

Answer 4

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

Question 5

Claims coop clause

Answer 5

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

Question 6

Claims control clause

Answer 6

Reinsurers preferred option

Reinsurer has full decision making

Question 7

Cede

Answer 7

The Insurer risk sharing w reinsurer

Question 8

Cession

Answer 8

Share of risk passed to reinsurer

Question 9

Collecting note

Answer 9

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

Question 10

Non proportional r/i

Answer 10

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

Question 11

Proportional reinsurance

Answer 11

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

Question 12

Reinstatement

Answer 12

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.

Question 13

Reinstatement premium

Answer 13

Premium paid for reinstatement layer

Question 14

Fac meaning

Answer 14

Optional, not compulsory

Question 15

Why buy fac

Answer 15

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

Question 16

Lower layers
Higher layers

Answer 16

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

Catastrophe layers - cheaper

Question 17

Combined ratio

Answer 17

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

Question 18

Loss ratio

Answer 18

% claims vs premium

Question 19

Stop loss r/i

Answer 19

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

Question 20

Benefit of QS for reinsurer

Answer 20

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

Question 21

100% Qs also known as

Answer 21

Fronting arrangement (100% of risk)

Question 22

Surplus lines treaty

Answer 22

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

Question 23

Surplus treaty

Answer 23

Insurer covers % of limit so pays % of a claim

Question 24

If a reinsurance claim, what steps first

Answer 24

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

Question 25

Government based reinsurance programmes schemes ? Us/uk/France-australia

Answer 25

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

Question 26

Flood insurance uk

Answer 26

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

Question 27

London reinsurance market

Answer 27

Major but not largest

Question 28

Types of r/i

Answer 28

Fac, proportional treaty, non proportional treaty

Question 29

Proportional r/i

Answer 29

Reinsurer shares risk in equal proportions up to cap

Question 30

Proportional r/I types

Answer 30

QS, Surplus lines

Question 31

XoL

Answer 31

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

Question 32

Stop loss r/i

Answer 32

Protects insurers loss ratio

Question 33

Order of claim in r/i

Answer 33

Fac first Proportional Non proportional

Question 34

How much Lloyd's annual premium income is reinsurance business

Answer 34

35%

Question 35

Fac obligatory reinsurance

Answer 35

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

Question 36

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

Answer 36

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

Question 37

Proportional reinsurances

Answer 37

Premium that original insurer receives correlated to what reinsurers receive. Quota share or surplus treaty reinsurance

Question 38

30% QS means

Answer 38

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

Question 39

100% QS otherwise called

Answer 39

fronting arrangement

Question 40

Surplus lines treaty

Answer 40

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

Question 41

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

Answer 41

reinsurance = USD 5.25m reinsurance = 5.25/6.25 = 84% of claims

Question 42

why reinsurers interested what other reinsurance arrangements a pedant has

Answer 42

general rule the most specific or relevant reinsurance contract responds first