Reinsurance. The Nuts and Bolts 3rd Ed

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Published Date

May 2012


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Reinsurance. The Nuts and Bolts 3rd Ed

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This publication provides guidance on the various types of reinsurance and why these are needed. Financial aspects, such as premium and loss portfolio transfers, are expanded upon and treaty wordings are given in detail. Emphasis is given to clauses such as period and termination, self-insured obligations and errors and omissions.

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This edition has been updated to reflect the change of reinsurance brokers’ working practices. As the title suggests, it offers operational guidance on subjects such as what to do if treaty limits fluctuate, how to allocate profit commission and how to understand treaty wordings. Market evolution is also explained in the context of catastrophic events, showing the adaptability of the reinsurance market.

Chapter 1              What is Reinsurance and Why do we Need It?
Chapter 2              Types of Reinsurance

                                2.1          Facultative

                                2.2          Ultimate Net Loss Clause

                                2.3          Treaties

                                2.4          Cessions to Treaties

                                2.5          Distribution of Premiums and Claims over a Proportional Programme
Chapter 3              Treaty Reinsurance – Financial Aspects

                                3.1          Premiums

                                3.2          Commission

                                3.3          Tax

                                3.4          Premium Reserves

                                3.5          Loss Reserves      

                                3.6          Interest on Reserves

                                3.7          How Reserves are Accounted

                                3.8          Losses
                                3.9          Cash Loss Refunds

                                3.10        Premium and Loss Portfolio Transfers

                                3.11        Profit Commission
Chapter 4              Proportional Treaty Wordings and Clauses

                                4.1          Period and Termination

                                4.2          Special Termination and Reinsurer Downgrade

                                4.3          Errors and Omissions

                                4.4          Self-insured Obligations

                                4.5          Inspection of Records

                                4.6          Arbitration

                                4.7          Bordereau
Chapter 5        Designing a Property Reinsurance Programme from Historical Data

                        5.1       Data

                        5.2       Constructing a Spreadsheet
Chapter 6        Excess of Loss Covers
Chapter 7        Excess of Loss Reinsurance – Financial Aspects

                        7.1       Premium

                        7.2       Loss Payments

                        7.3       Reinstatement Premiums

                        7.4       Burning Cost Rating
Chapter 8        Excess of Loss Rating

                        8.1       Exposure Rating

                        8.2       Constructing a Property Risk Excess Rating Model

                        8.3       Catastrophe Rating

                        8.4       Constructing a Catastrophe Rating Model
Chapter 9        Market Evolution
Chapter 10      Miscellaneous

                        10.1     Retrocession Treaties

                        10.2     Reinstatement Premium Protections

                        10.3     Additional Reinstatement Covers

                        10.4     Alternative Reinsurance

                        10.5     Thinking Things Through

                        10.6     The Market Reform Contract (MRC)

I have been encouraged by the reception this book has received. It has made it onto the recommended reading list of the Chartered Insurance Institute and many people have commented that it is used to settle technical questions, both within an organisation and in the context of discussions between reinsurers and their clients or brokers. It is also used as a training manual within several prominent organisations.

One of the questions I am often asked by foreign readers is the meaning of the title. To a native English speaker, it requires no explanation, but it does not translate at all well into other languages. I have tried to explain that nuts and bolts are basic pieces used in the construction of machines, but the explanation has often left people bewildered. In 2009 my Brazilian friend Nicolau Daudt offered to translate the book into Portuguese for the Brazilian market. The title was an obvious concern and I proposed that rather than use an engineering metaphor, we should use a jigsaw puzzle to suggest the fitting together of various pieces of knowledge to form an overall picture. The Brazilian title ‘O Quebra Cabeça do Resseguro’ was born and a book of that title was published by the Brazilian National Insurance School, ‘FUNENSEG’.

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 a significant impact on the working practices of reinsurance brokers. The traditional slip that could have been just a few pages is now a full contract including the contract wording.

This change in practice is responsible for the main revisions in this edition, although I have introduced some other new material in response to suggestions I have received over the years. 

Witherbys

Witherbys titles are developed using scripts developed by technical experts that are peer reviewed within work groups. Typically, they seek to improve understanding of the regulations, recommendations and guidelines issued by Industry.

Witherbys staff have significant expertise in the fields of navigation and hazardous cargoes as well as in the presentation of complex subjects in a graphic and easy to understand manner.

Keith Riley

Keith Riley has worked in the insurance industry since 1973, travelling throughout Latin America, the Middle East and Europe. He began his career in the Facultative Reinsurance Department of Sedgwick Forbes. Between 2015 and 2017, Keith was Vice President and Wordings Consultant in the Asia Pacific Division of Guy Carpenter. He then became Reinsurance Training Consultant at Kemma Training Consultancy Ltd.

Title: Reinsurance. The Nuts and Bolts 3rd Ed
Edition: Third
Number of Pages: 269
Product Code: WS1066K
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: 235 mm
Book Width: 155 mm
Book Spine: 14 mm
Weight: 0.40 kg

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