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Professional Liability Reinsurance: RPLU- Questions & Answers
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Professional Liability Reinsurance: RPLU- Questions & Answers
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Professional Liability Reinsurance:RPLU- Questions & Answers
Facultative Disadvantages: Correct Ans-1. Short-term relationship with reinsurer
2. More expensive to coordinate and administer
3. Short-term relationship with cedant/reinsured - canlead to adverse selection
4. Limits usually very low compared to limit exposed
5. More expensive to underwrite and administer
An insurer or reinsurer purchases treaty or facultative reinsurance for a number of reasons. The
insurer or reinsurer may be seeking to: Correct Ans-•Write individual policies with higher
limits of liability, or write more policies
•Protect against a large single loss or from exposure to an accumulation of losses
•Control fluctuation in loss experience
•Prevent a drain in or a increase surplus
•Supplement or increase underwriting expertise.
Offshore Correct Ans-1. Offshore reinsurers are domiciled outside of the U.S. and are not
governed by U.S. insurance regulations.
2. The appropriate U.S. insurance regulatory authorities determine the status as an admitted or
non-admitted reinsurer.
,Non-Admitted Correct Ans-1. A non-admitted reinsurer is a reinsurance company that has not
been licensed or authorized to conduct business in a particular state and that may also be called
an unauthorized reinsurer.
2. Unless certain financial criteria are met, an insurer purchasing reinsurance from a non-
admitted reinsurer will not be able to take credit for the purchase under U.S. insurance
regulations.
Admitted Correct Ans-1. An admitted reinsurer is a reinsurance company that is licensed or
authorized to conduct business in a particular state that is also called an authorized reinsurer.
2. An admitted reinsurer is subject to many of the same regulations that apply to primary insurers
and that can vary across different states.
Broker Market Correct Ans-1. Reinsurers may leverage the services of reinsurance
intermediaries who can tap other possible markets that would not otherwise be within their reach.
2. Reinsurance intermediaries provide sales support, contract negotiation, actuarial support,
claims services, catastrophe modeling, and other services as necessary to both insurers/cedants
and one or more reinsurers.
Direct Market Correct Ans-1. Insurer and reinsurer establish potential business relationships
through the reinsurer's employees, commonly called account executives.
2. These employees deal directly with the primary insurer's representatives and negotiate the
terms and conditions of the reinsurance agreement.
What are the three types of reinsurers in the U.S. market? Correct Ans-An admitted reinsurer
is a reinsurance company licensed or authorized to transact business in a particular state where
insurance is being provided.
,A non-admitted reinsurer is not licensed or authorized to transact business in a particular state
and may be located within or outside the U.S.
An offshore reinsurer is a reinsurance company domiciled or located outside the U.S. Many were
originally located on islands, hence the use of the term offshore.
What are the key benefits to reinsurers of the Bermuda market? Correct Ans-a.No income tax
(although an employment tax applies)
b.Few restrictions as to how Bermuda companies can invest their assets and deploy capital
c.Close proximity to the U.S.
For what is the London reinsurance market best known? Correct Ans-The London market
provides coverage for unusual and complex risks that may not be considered attractive to any
other reinsurance markets, including admitted and non-admitted reinsurers.
Many of the top reinsurance companies are either headquartered or based in Bermuda. Bermuda
companies can incorporate and set-up business quickly and operate with substantial competitive
advantages over their U.S. and European competitors. These advantages include: Correct Ans-
•No income tax (although an employment tax applies)
•Fewer restrictions about how Bermuda companies can invest their assets and deploy capital
•Close proximity to the U.S.
Offshore reinsurers Correct Ans-are domiciled outside the U.S. and are not governed by U.S.
insurance regulations. Many were established on islands, hence the term offshore. Today, large
numbers of reinsurers are based in Bermuda and England. Their status as admitted or non-
admitted reinsurers in the U.S. is determined by applicable insurance regulatory authorities. The
, global nature of reinsurance has provided for generally lenient regulation of non-admitted and
offshore reinsurance companies.
A non-admitted reinsurer Correct Ans-(also called an unauthorized reinsurer) is a reinsurance
company that is not licensed or authorized to conduct business in a particular state. The company
may be U.S.-based, but many are located outside of the country. Unless certain financial criteria
are met, an insurer purchasing reinsurance from a non-admitted reinsurer cannot take credit for
the purchase under U.S. insurance regulations.
An admitted reinsurer Correct Ans-(called an authorized reinsurer) is a reinsurance company
licensed or authorized to conduct business in a particular state. The company may be located
outside the U.S. and meet certain requirements for admitted status. Admitted reinsurers are
subject to many of the same regulations that apply to primary insurers, which can vary by state.
These regulations pertain to incorporation, licensing, minimum capitalization and surplus,
investment restrictions, accounting requirements, and liquidation procedures as well as U.S.
taxes.
Explain how the following reinsurance distribution channels work: Correct Ans-a.Direct
Market
Insurers and reinsurers establish and maintain business relationships through the reinsurer's
representatives, commonly called account executives. The reinsurer, through its employees,
provides all the services involved in a reinsurance agreement, including needs identification,
underwriting, contract negotiations, and claims processing as well as other services.
b.Broker Market
The insurer and reinsurer(s) establish relationships through a third party or a reinsurance
intermediary. The intermediary guides and represents the insurer/cedant during the negotiation
process, arranges the purchase of the reinsurance protection on the primary insurer's behalf, and
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