Arm 56 - Chapter 6

Front 1

Pro rata reinsurance

Back 1

The amount of insurance, premium, and the losses are divided between the primary insurer and the reinsurer in the same proportions as the risk.

Front 2

Quote share reinsurance

Back 2

Primary insurer and reinsurer use a fixed percentage in sharing the amounts of insurance, policy premium, and losses.

Has maximum coverage amount limitation.

Most have per occurrence limits

Front 3

Surplus share reinsurance

Back 3

Used for property.

The primary insurer and reinsurer share the policy premiums and losses proportionally.

The reinsurance limit is in multiples of the line amount of primary insurer.

*Remember the first layer of coverage is retained by primary insurer

Front 4

Excess of loss reinsurance

Back 4

A type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount of attachment point.

Percentage of policy premiums from primary insurer

Front 5

Per risk excess of loss

Back 5

For property insurance

Uses per occurrence limits

Applies separately to each loss occurring to each risk with the primary insurer determines what constitutes one risk

Front 6

Catastrophe exceed of loss

Back 6

Protects primary insurer from accumulation of retained losses that arise from a single catastrophic event.

Attachment point usually set high.

Payments for losses reduce the limit but primary insurer has option to replenish the amount for a charge

Front 7

Per policy excess of loss

Back 7

Liability insurance

Applies attachment point and the reinsurance limit separately to each insurance policy regardless of the number of losses occurring under each policy

Front 8

Per occurrence excess of loss

Back 8

Liability insurance

Applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more policies.

This is the reinsurance type where only one retention amount is held by the primary insurer on a per occurrence of an event across multiple policies.

Front 9

Aggregate excess of loss

Back 9

Used for property or liability.

Covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or a loss ratio, that occur over a specialized period, usually one year.

Less common and more expensive.

Front 10

Extra contractual damages

Back 10

Improper claims handling or bad faith

Front 11

Excess of policy limit losses

Back 11

Results when insured sues insurer for failing to settle a claim within the insurers policy limits.

Front 12

Clash cover reinsurer

Back 12

Has a higher attachment limit than any of the limits of the underlying. Used as a last resort reinsurance when all other reinsurance limits are exhausted

Front 13

Loss occurrence clause

Back 13

Time deductible or waiting period

Front 14

Working cover

Back 14

Reinsurance agreement with a low attachment point

Front 15

Attachment point

Back 15

Dollar amount above which the reinsurer responds to losses

Front 16

Cut through endorsement

Back 16

Reinsurer directly assumes the obligations of the primary insurer if primary insurer goes insolvent.

Usually requested when the primary insurer does not satisfy the financial standards established by the insureds lender.

Reinsurer prefers to avoid cut through because of administrative expenses keeping track.

Front 17

Bordereau

Back 17

A report the primary insurer provides periodically to the reinsurer that contains a history of all loss exposures reinsured under the treaty

Front 18

Primary insurer

Back 18

Is the insurance company that cedes loss to reinsurance company

Front 19

Reinsurance agreement

Back 19

States the reinsurance company accepts certain policies or exposures

Front 20

Retrocession

Back 20

Reinsurance for reinsurers

Front 21

Retrocedent

Back 21

Reinsurance company that transfers all or part of the reinsurance

Front 22

Retrocessionarie

Back 22

Reinsurance company that accepts reinsurance from the reinsurer

Front 23

Functions of reinsurance

Back 23

Increase large line capacity

Provide catastrophic protection

Stabilize loss experience

Provides surplus relief

Facilitate withdrawal from a market

Provide underwriting guidance

Front 24

Facilitate withdrawal from a market segment

Back 24

Run-off: Stop writing new insurance policies and continue with in force policies until they expire.

Cancel all policies (if regulations permit) and refund unearned premiums

Withdraw from market segment by purchasing portfolio reinsurance

Front 25

Portfolio reinsurance

Back 25

Commonly used by insurers who are withdrawing from a market.

Reinsurance that transfers to the reinsurer liability for an entire type of insurance, territory, or book of business after the primary insurer has issued the policies.

Front 26

Novation

Back 26

An agreement under which one insurer or reinsurer is substituted for another.

Front 27

Reinsurance sources

Back 27

Professional reinsurers

Reinsurance departments of primary insurers

Reinsurance pools, syndicates and associations

Front 28

Professional Reinsurer

Back 28

Reinsurer which interacts with other insurers either directly or through intermediaries as primary insurers do.

Front 29

Direct writing reinsurer

Back 29

A reinsurer whose employees deal directly with primary insurers is called a direct writing reinsurer

Front 30

Reinsurance intermediaries

Back 30

An intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts between primary insurer and reinsurer. Like a reinsurance broker.

Front 31

Broad generalizations of primary reinsurer

Back 31

Primary insurers dealing with direct writing reinsurers often use fewer reinsurers in their reinsurance programs

Reinsurance intermediaries often use more than one reinsurer to develop a reinsurance program for a primary insurer.

Reinsurance intermediaries can often help secure high coverage limits and catastrophe coverage.

Reinsurance intermediaries usually have access to various reinsurance solutions from both domestic and international markets

Reinsurance intermediaries can usually obtain reinsurance under favorable terms and at a competitive price.

Front 32

Reinsurance pool

Back 32

A reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure the risks the individual members are unwilling to individually insure

Front 33

Syndicate

Back 33

A group of insurers or reinsurers involved in joint underwriting to insure majors risks that are beyond the capacity of a single insurer or reinsurer. Each syndicate member accepts predetermined shares of premiums, losses, expenses and profits.

Front 34

Association

Back 34

An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the organization.

Front 35

Intermediaries and reinsurance underwriters association (IRU)

Back 35

Founded in 1967 and is composed of intermediaries and reinsurers that broker treaty reinsurance

Front 36

Brokers & Reinsurance Markets Association (BRMA)

Back 36

Intermediaries and reinsurers that are predominately engaged in US treaty reinsurance business obtained through reinsurance brokers.

Expertise focuses on reinsurance contract wording

Front 37

Reinsurance association of america (RAA)

Back 37

Headquartered in DC, is a nonprofit trade association of professional reinsurers and intermediaries and all members are domestic US companies or US branches of international reinsurers.

Front 38

Treaty reinsurance

Back 38

Uses one agreement for an entire class or portfolio of loss exposures and is also referred to obligatory reinsurance.

Agrees to reinsure all the loss exposures that all within the treaty

Front 39

Facultative reinsurance

Back 39

Uses a separate reinsurance agreement for each loss exposure it wants to reinsure and is also referred to as nonobligatory reinsurance.

Cannot be cancelled unless contractual obligations are not met.

Front 40

Four functions of facultative reinsurance

Back 40

Can provide large-line capacity for loss exposures that exceed the limits of treaty reinsurance agreements

Can reduce the primary insurer's exposure in a given geographic area.

Can insure a loss exposure with atypical hazard characteristics and thereby maintain the favorable loss experience of the primary insurer's treaty reinsurance

Can insure particular classes of loss exposures that are excluded under treaty reinsurance.

Front 41

Reinsurance through a subsidiary

Back 41

Many organizations form subsidiaries called captive insurers as a risk financing technique.

Captive insurers can directly insure the organization's loss exposures, or they can operate as a reinsurer for the commercial insurer that provides the organization's primary insurance.

Front 42

Reinsuring a pool

Back 42

The pool's management must be concerned with the financial strength, integrity, and operating efficiency of the pool's reinsurer.

Pools typically purchase excess of loss reinsurance.