IF3 - Chapter 11: Managing Exposure

What is the insurance market cycle?

The movement of the insurance market between periods of soft and hard market conditions.

What is a soft insurance market?

A market with high underwriting capacity, strong competition, lower premiums and wider cover.

What is a hard insurance market?

A market with reduced capacity, higher premiums, stricter underwriting and more restrictive cover.

What is risk accumulation?

When an insurer has multiple risks that could be affected by the same event, creating the possibility of a large combined loss.

Why must insurers manage risk accumulation?

To prevent a single event or catastrophe causing losses across too many insured risks at once.

What is reinsurance?

Insurance purchased by an insurer to transfer part of its risk to another insurer, known as a reinsurer.

Why do insurers purchase reinsurance?

To limit their exposure to large losses, increase underwriting capacity and protect their financial stability.

What are the two main types of reinsurance?

Facultative and treaty reinsurance.

What is facultative reinsurance?

Reinsurance arranged individually for a specific risk, with the reinsurer deciding whether to accept it.

What is treaty reinsurance?

Reinsurance covering an agreed portfolio or class of risks automatically, subject to the treaty terms.