ACE Reinsurance & Treaty Concepts Flashcards
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Read the first 6 ACE Reinsurance & Treaty Concepts flashcards as text
What is a 'loss development factor' (LDF) and why is it important in reinsurance pricing?
Answer: A multiplier used to project incurred losses to their ultimate settled value
LDFs (also called loss development factors or link ratios) project losses from an immature evaluation to ultimate values, which is critical for accurately pricing reinsurance treaties.
What does the 'experience rating' method for reinsurance pricing rely upon?
Answer: The cedant's own historical loss experience to develop future expected losses
Experience rating uses the cedant's own historical ceded loss data, adjusted for trend and development, as the primary basis for reinsurance pricing.
What is the purpose of an 'errors and omissions' (E&O) clause in a reinsurance treaty?
Answer: To allow inadvertent omissions in reporting to be corrected without voiding coverage
An E&O clause protects both parties by ensuring that clerical or administrative errors in bordereau reporting do not inadvertently terminate or void the treaty.
Which regulatory body oversees the financial condition of US reinsurers and sets accreditation standards for states?
Answer: National Association of Insurance Commissioners (NAIC)
The NAIC sets model laws and accreditation standards that US states adopt to regulate reinsurers, including collateral requirements for alien reinsurers.
Under the NAIC Credit for Reinsurance Model Law, when can a US cedant take credit on its balance sheet for ceded reserves?
Answer: When the reinsurer is licensed, accredited, or certified in the cedant's state or posts sufficient collateral
The NAIC Credit for Reinsurance Model Law permits balance-sheet credit only when the assuming reinsurer meets specific licensing, accreditation, certification, or collateral requirements.
In ACORD's reinsurance data standards, what does the term 'risk code' typically identify?
Answer: A standardized classification of the type of risk or line of business being ceded
ACORD risk codes provide a standardized vocabulary for classifying the line of business or risk type in reinsurance data exchanges, ensuring consistent interpretation across trading partners.