It has been almost 12 years since the last revision of this title and a great deal has happened in the London market in that period. Regulation of both banking and insurance is now under the control of the Financial Services Authority and this has led to tighter controls over how insurance institutions in the UK conduct their business. In tandem with these changes, the London market has reformed itself considerably and the three organisations that formerly handled many back-office functions on behalf of their members, LPSO (Lloyd’s), LIRMA (London Non-Marine market) and ILU (London Marine market) have been brought together under the umbrella of XChanging-Insure Services. This has led to the introduction of the Market Reform Contract; a document that replaces the traditional broker’s slip with a standard form of contract, designed to incorporate the entire terms and thereby provide contract-certainty at the inception of the insurance or reinsurance. This has had an enormous impact on the working practices of reinsurance brokers. The traditional slip that could, in the past have been just a few pages, is now a full contract including the contract wording (a document that was previously signed after the contract came into force; sometimes, in fact, so long after inception that it may already have expired before it was signed!).
Reinsurance: The Nuts and Bolts is a must have for all professionals working, studying or with a general interest in Reinsurance.
Introduction 1
Introduction to the second edition 1
Introduction to the first edition 2
Chapter 1. What is Reinsurance, and why do we need it? 5
Chapter 2. Types of Reinsurance 8
Facultative 9
Pro-rata (or proportional) 10
Excess of Loss (non-proportional) 12
Treaties 16
Pro-rata Treaties 17
Quota Share Treaties 17
Surplus Treaties 18
Facultative Obligatory Covers 20
Cessions to treaties 22
Special considerations 23
Basis of cession 23
Top Location & Pro-rata Basis. 23
PML Basis. 24
Per policy basis 24
Per Bottom Basis 25
Per Vessel Basis 25
Per Person Basis 25
Practical Exercise 1 - Distribution of Premiums and claims over a proportional programme 26
Chapter 3. Treaty Reinsurance - Financial Aspects 28
Premiums 29
Commission 30
Tax 30
Premium Reserves: 31
Loss Reserves: 32
Interest on Reserves: 32
How Reserves are accounted 33
Losses 34
Cash Loss Refunds 35
Premium and Loss Portfolio Transfers 36
Clean-cut versus Underwriting Year basis 36
Clean-Cut basis 37
Calculation of unexpired premiums 38
The 1/24ths System 38
1/8ths System 39
A fixed percentage 39
Profit Commission 43
Practical Exercises 2 (a) and (b)- Profit Commission calculations 45
Deficit Carry Forward 45
Underwriting Year Basis 46
Chapter 4. Proportional Treaty Wordings and Clauses 50
Period and Termination 50
Special Termination and Reinsurer Downgrade 51
Errors and Omissions 52
Self Insured Obligations 53
Inspection of Records 53
Arbitration 54
Bordereaux 54
Chapter 5. Designing a Property Reinsurance Programme from historical data 55
Data 57
Apportionment over the treaty programme. 59
Constructing the Spreadsheet 60
Chapter 6. Excess of Loss Covers 68
Chapter 7. Excess of Loss Reinsurance - Financial Aspects 75
Premium 75
Rate 75
Premium Income 75
(Minimum and) Deposit Premium 76
The "Penal" M & D 77
Other variable factors 77
Loss Payments 78
"Hours Clause" 78
Practical Exercise 3 - Allocating Claims over an excess of loss programme 79
Reinstatement Premiums 81
Burning Cost Rating 83
Working Covers 83
Definition of Burning Cost 83
Burning Cost Spreadsheet Model 88
Chapter 8. Excess of Loss Rating 91
Exposure Rating 91
Constructing the Property Risk Excess Rating Model 95
Catastrophe Rating 106
Constructing a Catastrophe Rating Model 108
Chapter 9. Market Evolution 112
Chapter 10. Miscellaneous 114
Retrocession Treaties 114
Reinstatement Premium Protections 115
Additional Reinstatement Covers 115
“Alternative Reinsurance” 115
Thinking things through 116
“Graded Retentions make better treaties” 116
“Quota Share bad, Surplus good” 117
The Market Reform Contract (MRC) 118
Chapter 11. Over to you 132
Chapter 12. Appendices 133
Appendix 1 - Answers to Practical Exercise # 1 133
Appendix 2 - Answers to Practical Exercise # 2 135
Appendix 3 - Answers to Practical Exercise # 3 138
Appendix 4 - Specimen Scale of Property First Loss Rates 140
Appendix 5 - Specimen Treaty Wordings 141
Non Marine Surplus Treaty 141
Motor and General Liability Excess of Loss 155
Marine Cargo and Hull Excess of Loss 173
General Catastrophe Excess of Loss 187
Title: Reinsurance. The Nuts and Bolts 3rd Ed. (eBook)
Edition: Third
Number of Pages: 269
Product Code: WS1066EA
ISBN: ISBN 13: 978-1-85609-536-5 (9781856095365), ISBN 10: 1-85609-536-3 (1856095363)
Published Date: May 2012
Binding Format: Paperback
Book Height: 230 mm
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