2 types of Off Shore Reinsurers - ️️-domiciled outside the US and not governed by
US regulations
Bermuda Market - estimated 30% of reinsurance markets (3rd largest market in the
world).
-Benefits: 1. No income tax 2. Fewer restricitions on how Bermuda companies can
invest their assets and ...
RPLU-05 Reinsurance
2 types of Off Shore Reinsurers - ✔️✔️-domiciled outside the US and not governed by
US regulations
Bermuda Market - estimated 30% of reinsurance markets (3rd largest market in the
world).
-Benefits: 1. No income tax 2. Fewer restricitions on how Bermuda companies can
invest their assets and deploy capital 3. Close proximity to the US
London Market: famous for assuming many unusual and complex risks (lloyds)
What are the Major Functions of Reinsurance? - ✔️✔️1. Increase Capacity
2. Stabilizes underwriting results over time
3.Protects from catastrophic risks or exposures
4. Provides underwriting, claims, and actuarial experience
5. Enables insurers to withdraw from geographic locations or classes of business
Explain the relationship between: Insured and Insurer - ✔️✔️the insured purchases
insurance from an Insurer (cedant) through payment of premium.
Explain the relationship between: Cedant and Reinsurer - ✔️✔️Cedant is the insurance
company that transfers exposures to another insurance company, called the Reinsurer.
Both the Insurer and Reinsurer are bound by a reinsurance agreement to perform their
agreed-upon obligations. The cedant must pay premiums to the Reinsurer, and the
Reinsurer must pay its share pf the losses incurred by the Cedant
Define reinsurance and describe its role in the industry - ✔️✔️Reinsurance is known as
"insurance for insurance companies." It is a mechanism for insurance companies to
protect their business from potential catastrophic losses. This risk management tool
works by shifting all, or a portion of the loss exposures assumed by the Insurer to a
Reinsurer. Reinsurance assists in increasing the availability and security of insurance
policies
Explain the relationship between: Reinsurer and Retrocessianaire - ✔️✔️The reinsurer
may also transfer/shift all, or a portion, of the exposures it assumes to another
Reinsurer, called a Retrocessionaire. This transaction is on as Retrocession
Large Line Capacity - ✔️✔️insurer can write higher limits of liability on a single
exposure than its policy limit
Premium Volume Cpacity - ✔️✔️total amount of business an insurer can accept based
on policyholders surplus
, Surplus relief - ✔️✔️refers to increase in an insurer's policyholders surplus through an
offset of reinsurer's reimbursement of insurer's expenses with insurer's prepaid
expenses
Clash Event - ✔️✔️single catastrophic event occurrence that may affect multiple
policies covered by an insurer
Direct Market Distribution Channel - ✔️✔️reinsurers own salaried employees are
responsible for marketing and underwriting the products
Benefits: specific needs may be addressed and resolved more efficiently because
companies communicate directly with reinsurers; better opportunities for insurers to
increase their underwriting expertise
Drawback: smaller # of products offered, limited options
Broker Market Distribution Channel - ✔️✔️reinsurance intermediaries assist in
negotiating on behalf of the primary company; compensated by a commission
Benefits: cost effective and efficient by limiting internal resources and intellectual
capital; broader # of reinsurers to compete on terms and pricing for business;
intermediary serves as a buffer
Drawbacks: Middleman may cause delay in resolving issues, more difficult to acquire
expertise because all transactions go through reinsurance intermediaries
Types of Reinsurers - ✔️✔️-Admitted
-Non-Admitted
-Off Shore
Reinsurance Agreement: Treaty vs Facultative - ✔️✔️Treaty: used to cover a group,
class or portfolio of insurance exposures; obligatory; each exposure is not analyzed
Facultative: agreement is negotiated for each prospective policy/individual risk
exposures; usual complex or unusual exposures; ca be more expensive than treat
because each exposure individually underwritten
Reinsurance Agreement: Treaty (+/- for reinsured) - ✔️✔️ADVANTAGE (to reinsured):
more confident in competence of reinsurer because of long term working relationship;
less costly; one agreement for group of exposures, opportunity to strengthen UW
expertise in certain classes of business
DISADVANTAGE (to reinsured): reinsured is obligated to cede all business belonging to
certain class or portfolio
Reinsurance Agreement: Treaty (+/- for reinsurer) - ✔️✔️Advantage: same as
reinsured and also: it further improves UW expertise and ability to assume large
premium volume under a single agreement
Disadvantage: reinsurer is obligated to accept all exposures covered by treaty;
exposures not examined individually
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