Property Reinsurance (Chapter 10)

Question 1

What is EML?

Answer 1

EML, or Estimated Maximum Loss, refers to the potential financial loss from a single fire or explosion on a given risk, as assessed by an underwriter within reasonable probability. It helps insurers gauge the extent of possible damage and set appropriate coverage limits. This concept considers the possibility that maximum loss will be less than the sum insured

Question 2

What is a ‘Premium Reserve’?

Answer 2

a premium reserve is the amount of money held by the reinsured
relating to premiums representing the unexpired portions of the policies or contracts as at
a certain date.

Question 3

What is the likely effect of a proportional treaty that expresses the limits on an EML basis without any EML failure restrictions?

Answer 3

It would give the reinsured full sum insured protection, even in the
event of an EML failure

Question 4

What are the rates used by the reinsurer for Proportional Business?

Answer 4

Rates set by the reinsured.

Question 5

What are sliding scale commissions & flat rate commissions?

Answer 5

A sliding scale commission adjusts based on performance—higher sales lead to higher commission rates. This motivates employees to sell more and rewards top performers. In contrast, a flat rate commission offers a fixed percentage or amount per sale, ensuring predictable earnings regardless of sales volume

Question 6

What is Facultative excess of loss?

Answer 6

a type of non-proportional reinsurance where the reinsurer covers losses exceeding a predetermined limit. allows insurers to transfer high-severity risks that exceed their retention capacity