Ch 10 Flashcards
The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary’s insurance policies.
Reinsurance
The insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement.
Reinsurer
In reinsurance, the insurer that transfers or cedes all or part if the insurance risk it has assumed to another insurer in a contractual arrangement.
Primary insurer.
Contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be reinsured.
Reinsurance agreement
Uncertainty about the adequacy of insurance premiums to pay losses.
Insurance risk
The amount retained by the primary insurer in the reinsurance transaction.
Retention
The consideration paid by the primary insurer to the reinsurer for assuming some or all of the primary insurer’s insurance risk.
Reinsurance premium
An amount paid by the reinsurer to the primary insurer to cover part or all of the primary insurer’s policy acquisition expenses.
Ceding commission
A reinsurance agreement whereby one reinsurer (the retrocedent) transfers or cedes all or part of the insurance risk it has assumed to another reinsurer.
Retrocession
The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer.
Retrocessionaire
The reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer.
Retrocedent
List the Six Principal Functions of Reinsurance
- Increase Large Line Capacity
- Provide Catastrophe Protection
- Stabilize Loss Experience
- Provide Surplus Relief
- Facilitate Withdrawal from a Market Segment
- Provide Underwriting Guidance
An insurer’s ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide.
Large-line capacity
The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposure.
Line
Which influences are the maximum amount of insurance (line) subject to.
- maximum amount of insurance allowed by insurance regulations (can’t retain more than 10% of surplus in one risk)
- Size of potential loss(es) that can be retained without impairing earnings or surplus.
- specific characteristics of a loss exposure
- amount, types, cost of reinsurance.
An insurer whose primary business purpose is serving other insurers’ reinsurance needs.
Professional reinsurer
A professional reinsurer whose employees deal directly with primary insurers.
Direct writer reinsurer
An intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts of reinsurance between the primary insurer and reinsurer, receiving commission for placement and other services rendered.
Reinsurance intermediary
What are the three sources of reinsurance.
1) professional reinsurers
2) reinsurance departments of primary insurers
3) reinsurance pools, syndicates, and associations
Who do professional reinsurers evaluate the primary insurer before entering into a reinsurance agreement?
The treaty reinsurer underwrites the primary insurer and the loss exposures being ceded.
What do reinsurers look at when evaluating a primary insurer?
Financial statements, info from financial rating services, info from insurance department, insurers experience, reputation, and management.
Groups of insurers that share the loss exposures of the group, usually through reinsurance.
Reinsurance pools, syndicates and associations
A reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure risks the individual members are unwilling to individually insure.
Reinsurance pool
A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums, losses, expenses and profits.
Syndicate