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Surplus Example
Surplus Example
Surplus Example
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SPEAKER
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INSURANCE
RISK
Policyholder Insurance Co.
- Insured - Insurer
- Underlying Insured
TRANSFERRING RISK
REINSURANCE
Risk
• Insurance Co. Reinsurer
- Ceding Co. -Assuming Co.
- Cedent
- Primary Insurer
– Direct Company
TRANSFERRING RISK
RETROCESSION
Risk
Reinsurer Reinsurer
- Retrocedent -Retrocessionaire
ELEMENTS OF
REINSURANCE
• Reinsurance is a form of
Insurance.
• There are only two parties to the
reinsurance contract - the
Reinsurer and the Reinsured - both
of whom are empowered to insure.
ELEMENTS OF REINSURANCE
(continued)
• The subject matter of a reinsurance
contract is the insurance liability the
Reinsured has assumed under
insurance policies issued to its own
policyholders.
• A reinsurance contract is an indemnity
contract.
What Reinsurance Does
• It redistributes the risk of loss
which a reinsured incurs under
the policies it issues according
to its own needs.
• It redistributes the premiums
received by the reinsured
according to its own needs.
What Reinsurance Does Not Do!
IN REINSURANCE,
ALMOST ANYTHING IS
NEGOTIABLE
THE HOUSE OF REINSURANCE
• FACULTATIVE
– INDIVIDUAL RISKS
• TREATY
– GROUPS OF RISKS
The House of Reinsurance
• THE FACULTATIVE SIDE:
– Single Policy or Risk
– Reinsurer evaluates each risk and
establishes or agrees to accept
Coverage Form and Price.
– Automatic and Semi-Automatic Facilities
The House of Reinsurance
• THE TREATY SIDE:
– Covers classes or entire
“books” of business.
– Quota Share
• Reinsurer takes same % on each risk.
• “Of” vs. “Part Of”
The Forms of Reinsurance
• Pro-Rata or Proportional (cont.)
– Surplus Share
• Reinsurer’s share varies for each risk
based on type and/or size of risk.
• Whatever that percentage share is,
reinsurer receives same percent of
premium and losses.
The Forms of Reinsurance
• EXCESS OR NON-PROPORTIONAL:
– Per Risk (property), Per Occurrence
(casualty) or Claims Made
– Per Occurrence: Catastrophe
– Aggregate or Stop Loss Excess
The Forms of Reinsurance
• Per Risk or Occurrence Excess
– Responds to Losses Excess of a
Predetermined Retention
– No Proportional Sharing of Premium
or Loss
– Premium is Negotiated
– Written in Layers
– Normally has Occurrence Limit
– Reinstatements are Negotiated
REINSTATEMENTS
• PROPORTIONAL -- DOES NOT APPLY
• “FULL”
• AT A PRICE
• FREE AND UNLIMITED
• FREE BUT LIMITED
• COMBINATION OF ABOVE
RISK EXCESS PRICING
• LOSS RATING
– BURNING COST
– LOADED PRICE
– TREND & DEVELOPMENT FACTORS
• EXPOSURE RATING
– RATING SCALES
• UNDERWRITER’S JUDGEMENT
OCCURRENCE LIMITS
• PER RISK EXCESS
– MULTIPLE OF RISK SIZE
• PROPORTIONAL
– CHANGES SINCE 1992
– NEGOTIATED
• FLAT DOLLAR AMOUNT
• PERCENT OF PREMIUM
• MULTIPLE OF RISK SIZE
Forms of Reinsurance
• Catastrophe Excess of Loss
– Covers all losses in an event
– Occurrence is defined as a geographic
area (flood and Riot) or a time period
(wind, quake, fire and winter storm)
– Usually Limited to two Occurrences
• Additional Cover Needed
– Sold in Layers
– Usually has two risk warranty
CATASTROPHE CHANGES
• No Reinstatement in Same Event
• Reinstatement at 100%
• ECO/XPL Excluded
• Deposits at 100%
SURPLUS TREATY
HOW DO
WE
DO THAT???
SURPLUS TREATY
EXAMPLE
$5 MILLION VALUES
BUILDING, CONTENTS, ETC.
ANY
SIZE
LOSS!
SURPLUS TREATY
BY LINES
SURPLUS TREATY
ERGO
SIZE % CEDED
REDUCED RESPONSIVENESS
CORPORATE SPECIALIZATION
GLOBALIZATION
• WORLDWIDE CLIENTS
– WORLDWIDE INSURANCE NEEDS
– WORLDWIDE REINSURANCE NEEDS
• NATIONAL CLIENTS
– WORLDWIDE INSURANCE/REINSURANCE
NEEDS
• CORPORATE SOLUTIONS?
RISK MANAGEMENT
• DO WE NEED AN INSURER?
– CAPITAL REQUIREMENTS
– EXPERTISE
– CORPORATE CAPACITY
• MONEY
• TIME
– LEVERAGING ABILITY
!WARNINGS!
DON’T DABBLE!