Chapter 3 Flashcards
(17 cards)
What is reinsurance?
Reinsurance is risk transfer from an insurer to a reinsurer.
Reinsurance helps insurers manage their risk exposure by transferring part of their risk to another entity.
What are the benefits of purchasing reinsurance?
Reinsurance provides peace of mind and evens out peaks and troughs in an insurer’s results.
It allows insurers to stabilize their financial performance over time.
How does reinsurance affect an insurer’s capacity?
Reinsurance releases capacity for the insurer to write more direct business.
This enables insurers to take on more policies without increasing their risk exposure.
What is the role of firms that specialize in reinsurance?
Some firms specialize in reinsurance to access types of business or parts of the world that they either cannot or do not want to access directly.
These firms often have specific expertise in certain markets or risks.
Is London the largest reinsurance market in the world?
No, London is a major reinsurance market but not the largest in the world.
Other markets, such as those in Bermuda or the United States, may have larger shares.
What are the main types of reinsurance products?
Main reinsurance products include:
* Facultative
* Proportional treaty
* Non-proportional treaty
Some reinsurance products resemble financial instruments more than traditional offerings.
What is retrocession in reinsurance?
Retrocession is the term used for a reinsurance contract where the buyer is already a reinsurer.
This is a way for reinsurers to manage their own risk.
What is facultative reinsurance?
Facultative reinsurance is purchased to protect individual, usually unusual risks.
It is tailored to specific risks that may not fit standard reinsurance agreements.
How does proportional reinsurance work?
Proportional reinsurance involves the insurer and the reinsurer sharing risks in equal proportions subject to any cap on the reinsurance.
This means both parties take on a percentage of the risk and reward.
What are the two main sorts of proportional treaty?
The two main sorts of proportional treaty are:
* Quota share
* Surplus lines
These types determine how risks and premiums are shared between the insurer and reinsurer.
What is excess of loss reinsurance?
Excess of loss reinsurance is non-proportional and is purchased in layers.
This type of reinsurance is designed to cover losses that exceed a certain amount.
What is stop loss reinsurance?
Stop loss reinsurance is purchased to protect an insurer’s loss ratio.
It helps insurers limit their losses over a specific period.
What is meant by an insurer’s retention?
The amount of any risk that the insurer has to bear itself, without reinsurance, is called its retention or retained line.
This is the portion of risk that remains with the insurer.
Are there set rules for constructing a reinsurance program?
There are no set rules for construction.
Insurers must carefully assess their exposures and balance their need for protection with the costs.
What types of risks can be protected using facultative reinsurance?
Individual risks can be protected with facultative reinsurance.
This is often used for unique or high-risk situations.
How can classes of business be protected in reinsurance?
Classes of business can be protected with proportional and non-proportional treaties.
This allows insurers to cover broader categories of risk.
What is the typical order of triggering reinsurance policies for a claim?
If more than one reinsurance policy is available for any claim, they are normally triggered in the following order:
* Facultative first
* Proportional
* Non-proportional
This order helps clarify how claims are settled among different policies.
