Portfolio Management & Strategy Flashcards

A large trucking company establishes a captive insurance company to cover its fleet liability. The PRIMARY portfolio strategy benefit of this structure is:

Answer: Retaining underwriting profit and gaining direct access to reinsurance markets

A captive allows the parent to retain underwriting profits in favorable years and access reinsurance directly, improving cost efficiency and risk visibility.

Under a large deductible (LD) program for a transportation fleet, the insurer's role is BEST described as:

Answer: Providing a fronting policy with statutory limits while the insured funds losses within the deductible layer

In an LD program, the carrier issues the policy and pays all claims but is reimbursed by the insured for amounts within the agreed deductible, often backed by collateral.

Collateral is required from an insured under a large deductible program to:

Answer: Protect the insurer against the insured's failure to reimburse deductible losses

Collateral—typically a letter of credit or escrow—secures the insured's reimbursement obligation, protecting the insurer if the insured becomes insolvent.

A retrospective rating plan for a transportation insurer adjusts final premium based on:

Answer: The insured's actual loss experience during the policy period within a minimum and maximum premium range

Retrospective rating aligns final premium with the insured's own loss experience, bounded by a minimum and maximum to limit risk transfer in both directions.

A self-insured retention (SIR) differs from a traditional deductible in that:

Answer: The insured handles and pays claims within the SIR before the insurer's policy is triggered

Under an SIR, the insured controls and pays claims within the retention amount, whereas under a traditional deductible the insurer pays all claims and seeks reimbursement.

In a fronting arrangement for a transportation captive, the fronting carrier assumes which role?

Answer: Issuing the policy, satisfying regulatory requirements, and ceding most risk back to the captive

The fronting carrier provides an admitted policy meeting regulatory requirements and then cedes the substantial majority of risk back to the captive via reinsurance.

A corridor deductible in a transportation program is BEST described as:

Answer: An insured-funded layer sitting between two insurer-funded layers in the program structure

A corridor deductible creates an insured-retention layer sandwiched between a primary insurer-funded layer and an excess layer, often used to reduce program cost.