Reinsurance Concepts and Applications Flashcards
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In excess of loss reinsurance, what is the term for the amount the ceding company pays before the reinsurer's coverage begins?
Answer: Attachment point (retention)
The attachment point (also called the retention) is the dollar amount of loss the ceding company must absorb before the reinsurer begins paying under an excess of loss structure.
Which reinsurance pricing method calculates the reinsurer's expected loss cost based on historical loss experience adjusted for trend and development?
Answer: Experience rating (burning cost method)
The burning cost (experience rating) method prices reinsurance by analyzing historical losses that exceeded the retention, trended and developed to current levels, to estimate future reinsurer costs.
What does the term 'reinsurance recoverable' represent on a primary insurer's balance sheet?
Answer: Amounts owed to the primary insurer by reinsurers for ceded losses
Reinsurance recoverables are amounts the primary insurer expects to collect from its reinsurers for ceded claims that have been paid or are outstanding, appearing as an asset on the balance sheet.
In surplus share reinsurance, the amount ceded is based on which factor?
Answer: The amount by which the policy limit exceeds the ceding company's retention line
In surplus share reinsurance, the ceded amount is the portion of the policy limit that exceeds the ceding company's net retention line, so larger policies cede a higher proportion to the reinsurer.
What is a 'loss corridor' in an aggregate reinsurance structure?
Answer: A range of aggregate losses where the ceding company retains 100% of losses
A loss corridor is a band within the reinsurance structure where the ceding company bears all losses itself, often placed between two layers of reinsurance, reducing the reinsurer's exposure and premium cost.
Under the 'follow the fortunes' doctrine in reinsurance, what obligation does the reinsurer have?
Answer: To pay its share of losses as long as the ceding company settled them in good faith
The 'follow the fortunes' doctrine requires the reinsurer to pay its share of settlements made by the ceding company in good faith, even if the reinsurer might have resolved the claim differently.
Which term describes reinsurance purchased to protect a specific layer of losses, from one attachment point up to a higher limit, without regard to individual risk?
Answer: Per occurrence excess of loss layer
A per occurrence excess of loss layer covers losses from a single occurrence that fall between the attachment point and the upper limit, protecting the ceding company from large individual events.