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1. It is limited and you have to declare how many free reinstatements you buy. For example when reinsuring property line you can buy coverage of USD 99.000.000 in excess of USD 1.000.000 with one free reinstatement. If three losses of USD 100.000.000 happen during a year only first two are covered if you do not buy additional coverage. Also after two losses that exhaust your excess of loss capacity buying the third reinstatement would be extremely expensive.
2. You have to pay so called MinDep - minimum deposit premium. It is calculated as a certain percentage of estimated premium income multipled by the rate. If your actual premium income is lower than this percentage of declared premium income you pay for empty coverage - the one you do not actually need.
3. Excess of loss only covers losses excessing some amount while proportionate reinsurance (quota share, surplus) covers certain share of every, even the smallest one, indemnity paid from the insurance that falls into the treaty.
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What are the advantages of excess of loss reinsurance?
- Simplified accounting procedures - Low administrative costs
What is Outward Reinsurance?
Reinsurance ceded by an insurer or re-insurer as opposed to inwards reinsurance which is reinsurance accepted.
Who are the buyers of reinsurance?
*Direct insurance company *Captive insurance company *Reinsurer However, there are no clear separation between buyers and sellers in reinsurance. Insurance company maybe a buyer (outward reinsurance) and a seller (inward reinsurance)
Who is Insured in case of Reinsurance?
Reinsurance may be purchased by an insurance company for an individual risk, a specific class of risk, or an entire book of business. In any case, the insurance company that purchases the reinsurance is the Insured. The actual policy holder(s) are unaware of the reinsurance arrangement.
Who sells reinsurance?
Majority of reinsurance is sold by Reinsurance companies. The biggest of these are Munich Re, Swiss Re, Gen Re, Hannover Re and so called London Market - however it cannot be considered as classic reinsurance company. In some cases insurers reinsure other insurance companies.
AAD stands for what in catastrophe excess loss reinsurance?
Annual Aggregate Deductible
What are the advantages of excess of loss reinsurance?
- Simplified accounting procedures - Low administrative costs
What is the excess of loss reinsurance coverage effect on unearned premium?
Excess of loss reinsurance coverage typically has no direct effect on unearned premium. Unearned premium represents the portion of an insurance policy premium that has been paid in advance but has not yet been "earned" by the insurer due to the coverage period still being in progress. Excess of loss reinsurance helps protect the insurer from catastrophic losses by providing additional coverage, but it does not impact the timing or calculation of unearned premium.
What is reinsurance?
Reinsuring is the act of purchasing a reinsurance agreement. Reinsurance is purchased by an insurance company who wishes to transfer part of the risk of loss from an issued policy or group of policies to another insurance carrier. This is done when the limit of insurance for a particular policy would exceed the capacity of an insurance carrier or a carrier needs reinsurance to increase the policy holder surplus required to maintain a sound financial position. Their are two types of reinsurance, treaty reinsurance and facultative reinsurance. Treaty reinsurance is arranged usually in advance, for a group of policies meeting certain criteria. For example, a treaty reinsurance policy may cover $250,000 of property losses excess of $250,000 for all commercial building properties in a given state. This is called excess of loss treaty reinsurance. This would be used to address capacity issues that occur frequently. Another type of treaty reinsurance is pro-rata reinsurance or share reinsurance. In pro-rata reinsurance, the reinsurer agrees to pay a percentage of all losses on the agreed upon policies. For example, a pro-rata treaty reinsurance policy may pay 50% of all losses of a group of policies. The premium for this type of reinsurance would be 50% of the earned premium for each of the policies covered minus a deduction for policy expense (underwriting and compensation to the agent). This type of treaty reinsurance is used to address a policyholder surplus need of the ceding insurer. Facultative reinsurance is issued for one policy, not a group of policies, and is usually used to address large line capacity, especially in property coverage. Facultative is usually written on an excess of loss basis. For example, an insurance company may have secured treaty reinsurance to write properties of a certain type up to $150 million loss limit, but the insured is requesting $250 million. To write the insurance policy, the insurance company must secure facultative reinsurance in the amount of $100 million excess $150 million. This may be abrivated $100 million xs $150 million. Mark Walters, ARM AAI West Insurance Group mwalters@westagy.com
What methods do insurers use to protect themselves from catastrophic loss?
Reinsurance
What has the author Ronan B O'Connor written?
Ronan B. O'Connor has written: 'Option pricing, bank lending, and excess of loss reinsurance' -- subject(s): Options (Finance), Reinsurance, Bank loans 'Rating the credit process in banking' -- subject(s): Interest rates, Bank loans, Banks and banking, Interest rate risk
EPI stands for what in catastrophe excess of loss reinsurance?
EPI is an accounting term which stands for Earned Premium Income, but is not a term specific to just cat XOL reinsurance. On any insurance or reinsurance contract, the entity offering the coverage books the "written premium" when a policy becomes effective, but only earns the premium once the risk associated with that premium has been experienced. For example, if you have an auto insurance policy that is effective for one year, from January 1st until December 31st, and costs 365 dollars, the insurer books $365 as written premium on January 1st. The insurer only earns $1 per day, since each day they were exposed to 1/365th of the risk associated with the written premium. So halfway through the year, on June 30th, the insurer will have booked $182.50 as earned premium income (EPI) for the year-to-date. EPI stands for Estimated Premium Income also and this is the meaning that refers to catastrophe excess of loss reinsurance more. Estimated premium income is characteristic for every Excess of Loss reinsurance, including CAT XOL, and along with the rate, is what the price for catastrophe excess of loss reinsurance treaty is calculated from. EPI for CAT XOL equals how much premium the Insurer expects to write during a year he is buying CAT XOL capacity for provided that said insurance premium is written on the basis of insurances that would be covered by cat xol treaty. Majority of this premium income comes form motor hull and property lines of business.
What is meant by ground up loss in reinsurance?
The total amount of loss to the the ceding company prior to credits such as salvage or subrogation.
What is a Tent Plan Reinsurance?
Tent Plan Reinsurance is a form of treaty reinsurance that covers multiple lines of business and is based on a non proportional / Excess of Loss basis. Similar to an umbrella, but attaching at the frequency level. This makes sense to insurers, that have many smaller lines of business which would be too uneconomical for a normal and seperate XoL structure. For example: Insurer A writes some Fire, Engineering, Personal Accident, Marine and Surety business. In order to protect from large losses, the company could buy one XoL for instance 450k USD in excess of 150k USD for all these lines of business.
What is Outward Reinsurance?
Reinsurance ceded by an insurer or re-insurer as opposed to inwards reinsurance which is reinsurance accepted.
What is meant by quota share treaty reinsurance?
Quota Share reinsurance is a type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums and losses (including loss adjustment expenses) using a fixed percentage. Quota Share reinsurance can be used for both property and liability insurance but is more frequently used in property insurance.
Disadvantages of modernization?
Displacement of traditional cultures and practices. Increased inequality and social disparities. Environmental degradation and natural resource depletion.
