CU Reinsurance and Portfolio Management Flashcards

Reinsurance recoverables appear on the primary insurer's balance sheet as:

Answer: An asset representing amounts owed by reinsurers for paid and unpaid losses

Reinsurance recoverables are recorded as assets because they represent money the reinsurer owes to the cedent for covered losses.

Which term describes the process by which a reinsurer itself purchases reinsurance?

Answer: Retrocession

Retrocession is the practice of a reinsurer transferring part of its assumed risk to another reinsurer, called a retrocessionaire.

What is a 'fronting arrangement' in the context of reinsurance and portfolio management?

Answer: A licensed insurer issues a policy but cedes nearly all risk to a captive or reinsurer

In a fronting arrangement, a licensed carrier issues the policy for regulatory compliance but passes substantially all risk to a captive or reinsurer through a reinsurance agreement.

Loss development factors (LDFs) are used in portfolio management to:

Answer: Project how reported losses will grow to their ultimate settlement value

LDFs are actuarial multipliers applied to immature loss figures to estimate the ultimate cost of claims as they develop over time.

In underwriting portfolio management, 'rate adequacy' means:

Answer: Ensuring charged premiums are sufficient to cover expected losses, expenses, and a reasonable profit

Rate adequacy confirms that the premiums collected will be enough to pay all expected costs and generate an appropriate return on capital.

Which regulatory body in the US establishes model laws and guidelines that influence state-level reinsurance credit standards?

Answer: National Association of Insurance Commissioners (NAIC)

The NAIC develops model regulations adopted by states, including standards for when a cedent can take credit on its balance sheet for ceded reinsurance.