Chapter 3: The Reinsurance Placement Process Flashcards

These vocabulary flashcards cover the primary systems, documentation, and specific terminology associated with the reinsurance placement process, including facultative and treaty-specific details.

Direct Writing Marketing System

A marketing system where reinsurers sell reinsurance directly to primary insurers through their own sales force without involving reinsurance intermediaries.

Broker Marketing System

A marketing system in which a reinsurance intermediary brokers the transaction between the primary insurer and the reinsurer.

Brokerage

A commission or flat fee paid by reinsurers to reinsurance intermediaries for their services.

Reinsurance Placement Process

A three-step process involving selecting a marketing system, developing a reinsurance agreement proposal, and completing agreement documentation.

Broker of Record Letter

A preagreement document providing written authorization from a primary insurer for a reinsurance intermediary to negotiate on its behalf.

Premium and Loss Account

An account maintained by reinsurance intermediaries to separate their own funds from those of primary insurers and reinsurers, preventing the offsetting of funds.

Nine-Month Rule

An NAIC accounting rule requiring reinsurance agreements to be signed no later than $9\,months$ after the effective date to receive reinsurance accounting treatment.

Contract Certainty

The requirement for complete and final agreement of all terms between the insured and insurer by the time the contract is entered into.

Facultative Reinsurance

Reinsurance placed on an individual loss exposure basis, where the reinsurer can accept or reject each submitted exposure.

Overlining

A situation where a reinsurer accepts more than the maximum amount of reinsurance it wants to provide on any one loss exposure.

COPE

An acronym for descriptive details required by property underwriters: Construction, Occupancy, Protection, and External exposures.

Exposure Rating

A pricing approach used to determine the extent to which assumed liability will be subject to losses from the underlying policy and calculating a fair price for that exposure.

Increased Limit Factor Tables

Actuarially developed tables, such as those from ISO, used by casualty underwriters as guidance to price assumed liability layers in excess of base limits.

Lloyd’s Property First Loss Scale

A reliable property pricing tool used to allocate premium between primary and excess layers, though it is not actuarially based.

PSOLD

The Commercial Property Size-of-Loss Database developed by ISO to aid reinsurers in pricing excess layers of property coverage.

Reinsurance Binder

A temporary written agreement issued by a facultative reinsurer that serves as evidence of coverage until a certificate is issued.

Facultative Reinsurance Certificate

The final legal contract for facultative reinsurance specifying all terms, conditions, exclusions, and commissions.

Treaty Reinsurance

Reinsurance designed to cover an entire line or book of business, typically without the reinsurer having the right to reject individual exposures.

Limits Profiles

Summaries of coverage limits and corresponding premiums for the loss exposures subject to a treaty, categorized into ranges.

Ground-Up Losses

Gross amounts of losses with no reduction for reinsurance recoveries.

Stair Stepping

The practice of increasing individual reserves incrementally rather than setting them adequately at the outset, indicating inaccurate ultimate value estimation.

Override

The difference in a pro rata treaty when the reinsurance commission received by the primary insurer is greater than its original acquisition expenses.

Losses-Occurring Basis

Refers to treaty coverage that includes losses on underlying policies in effect at inception as well as policies newly issued or renewed during the treaty term.

Policies-Attaching Basis

Refers to treaty coverage that includes only those losses for underlying policies sold or renewed after the treaty’s inception date.

Cut-Off Basis

A cancellation term that terminates the reinsurer’s responsibility for losses as of the treaty’s expiration date.

Run-Off Basis

A cancellation term where the reinsurer continues responsibility for losses until the expiration of the underlying policies.

Lead Reinsurer

The reinsurer that first accepts a treaty proposal, quoting the rates and other terms for the agreement.

Following Reinsurers

Additional reinsurers that accept the reinsurance proposal based on the terms established by the lead reinsurer.