overview re insurance

8/3/2019 Overview Re Insurance

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Overview of Property and CasualtyOverview of Property and CasualtyReinsuranceReinsurance

Robert D. GrahamSr. V.P. & Assistant General

CounselGeneral Reinsurance Corporation


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Overview of ReinsuranceOverview of ReinsuranceProperty & CasualtyProperty & Casualty

Introduction Purpose

Forms & Types

Domestic Market

Marketing Reinsurance

Security


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Definition of Reinsurance

Definition of Reinsurance

Reinsurance is a contract of insurance

whereby one insurer (called the reinsurer orassuming company) agrees, for a portion ofthe premium, to indemnify another insurer(called the reinsured or ceding company) for

losses paid by the reinsured under insurancepolicies issued by the reinsured to itspolicyholders.


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RetrocessionRetrocession

Reinsurer

Retrocedent

InsuranceInsurance

Policyholder

InsuredUnderlying

Insured

ReinsuranceReinsuranceInsurance Co.

Ceding Co.

Cedent

Primary Insurer

RiskRisk

RiskRisk

RiskRisk

Insurance Co.

Insured

Reinsurer

AssumingCo.

Reinsurer

Retrocessionaire


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Elements of ReinsuranceElements of Reinsurance

Reinsurance is a form of insurance.

There are only two parties to the reinsurance

contract - the Reinsurer and the Reinsured -both of whom are insurers, i.e. entitiesempowered to insure.

The subject matter of a reinsurance contract is

the insurance liability of the Reinsuredundertaken by it under insurance policiesissued to its own policyholders.

A reinsurance contract is an indemnity

contract.


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What Reinsurance DoesWhat Reinsurance Does

1. It converts the risk of loss of an insurer

incurred by the reinsured under its policiesaccording to its own needs.

2. It redistributes the premiums received by

the reinsured, which now belong to the

reinsured, according to its own business

needs.


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What Reinsurance Does Not DoWhat Reinsurance Does Not Do

Reinsurance does not:

Convert an uninsurable risk into an insurable risk.

Make loss either more or less likely to happen.

Make loss either greater or lesser in magnitude.

Convert bad business into good business.

It is not Alchemy.

Reinsurance is not coinsurance. Reinsurance is not banking it is

not the lending of money but it

can have the same effect.

Reinsurance is not a security.


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Functions of ReinsuranceFunctions of Reinsurance

Financing

Stabilization

Capacity

Catastrophe Protection

Services


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FinancingFinancing

is growing and needs additional surplus tomaintain acceptable premium to surplus ratios.

Unearned premium demands reduce surplus.

In a down cycle, underwriting results are bad

and reduce surplus.

Investment valuation negatively impacts

surplus.

Marketing considerations dictate that an

insurer enter new lines of business or new

territories.


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StabilizationStabilization

Marketing ConsiderationMarketing Consideration

Policyholders and stockholders like to beidentified with a stable and well managedcompany.

Management ConsiderationManagement Consideration

Planning for long term growth and developmentrequires a more stable environment than aninsurance companys book of business is apt toprovide.


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CapacityCapacity

Refers to an insurers ability to provide a

high limit of insurance for a single risk,

often a requirement in todays market.

Reinsurance can help limit an insurers loss

from one risk to a level with which

management and shareholders are

comfortable. Most states require that the maximum net

retention from one risk must be less than

10% of policyholders surplus.


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Catastrophe ProtectionCatastrophe Protection

Objective is to limit adverse effects on P&L

and surplus from a catastrophic event to apredetermined amount.

Covers multiple smaller losses from

numerous policies issued by one primaryinsurer arising from one event.


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ServicesServices

1. Claims Audit

2. Underwriting

3. Product Development

4. Actuarial Review

5. Financial Advice

6. Accounting, EDP and other systems

7. Engineering - Loss Prevention


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Reinsurance is Provided ThroughReinsurance is Provided Through

A. TreatyA. Treaty

a. Covers classes or entire books of business

b. Reinsurer accepts as written by insurer as to

form, price and risk

B. FacultativeB. Facultative

a. Single Policy/Risk

b. Reinsurer evaluates each risk andestablishes or agrees to acceptance, form

and price

c. Automatic or semi-automatic facilities


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Forms of ReinsuranceForms of Reinsurance

PROPORTIONAL EXCESS OR NON-PROPORTIONAL

Quota Share

Reinsurercovers the

samepercent oneach risk

Surplus

Share

Reinsurers

share basedon type orsize of risk

Excess Each Risk/

Per Risk

Per Risk Excess of Loss

Reinsurer covers excess of apredetermined amount; limitsapply separately to each loss

Per Risk Aggregate Excess of Loss

Reinsurer covers over aggregate

claims for a risk in a specified periodof time

Excess Each

Occurrence

(Catastrophe)

Reinsurercovers over a

predetermined

amount or limit

for all losses

arising out ofone event or

occurrence

Aggregate

Excess

(Stop Loss)

Reinsurer coversover a

predeterminedaggregate limitof loss or loss

ratio for aspecific

period oftime


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Pro Rata or ProportionalPro Rata or Proportional

Share in Premium in Predetermined Manner

Share in Losses in Direct Proportion to PremiumCeded

Pays Ceding Commission to Reimburse forExpenses

Can be Quota Share or Surplus Share

Quota Share: Reinsurer covers some percenton each risk

Surplus: Reinsurer share based on type/size ofrisk


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Excess or NonExcess or Non--ProportionalProportional

No Proportional Sharing of Premium or

Loss

Responds to Losses Excess ofPredetermined Retention

Negotiated Premium

Written in Layers


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Excess (XS)Excess (XS)Risk ExcessRisk ExcessWritten in LayersWritten in Layers

0

25

50

75

100

INSUREDSINSUREDS

POLICY LIMITS (THOUSANDS)POLICY LIMITS (THOUSANDS)

2ND LAYER2ND LAYER

1ST LAYER1ST LAYER

RETENTIONRETENTION


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Excess (continued)Excess (continued)CATASTROPHECATASTROPHE

$$LOSSLOSS

1ST1ST 2ND2ND 3RD ETC.3RD ETC.

RETENTIONRETENTION

10MM

5MM

1MM

$1MM

XS$5MM

$4MMXS

$5MM

OCCURRENCE


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Cat XSCat XS

SummarySummary

Retention Established

Maximum Recovery Established

Premium Negotiated

Sold in Layers

Usually Limited to Two Occurrences

Additional CoverNeeded


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Aggregate XSAggregate XSSummarySummary

Stop Loss

Accumulation of Losses


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Types of ReinsurersTypes of Reinsurers

1. Professional Reinsurers

Specialize in Reinsurance

Are Licensed in at Least One State

Derive Majority of Their Premium IncomeFrom Reinsurance

Forms

Stock CompanyMutual Company

U.S. Branch of Alien Company


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Types of ReinsurersTypes of Reinsurers

2. Reinsurance Department of Primary Company

3. Pools

Special Purpose

General Purpose

4. Lloyds of London


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Marketing of ReinsuranceMarketing of Reinsurance

1. Broker (Intermediary) Market1. Broker (Intermediary) Market

Reinsurance Intermediary

Provides Business for Reinsurers Brings Parties Together - Helps Negotiate

Reinsurance Terms

Acts as Agent of Ceding Company

Compensated by Reinsurer

Reinsurers Share Reinsurance Programs


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Marketing of ReinsuranceMarketing of Reinsurance

2. Direct Writers2. Direct Writers

Contact Primary Insurers Directly Through

Salaried Employees

Frequently Assume

100%of ReinsuranceProgram


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Reinsurance SecurityReinsurance Security Evaluation of Cedants, Retrocessionaires

and Intermediaries

Financial Condition

Underwriting Policies and Procedures

Claims Policy and Administration

Management Stability and Expertise


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Market Share of U.S. Reinsurers' Year-End 2002 ResultsRanked by Net Reinsurance Premiums Written

Source:RAA Reinsurance

Underwriting Report March

13, 2003

Reinsurers Net Reinsurance Premiums Written

Year-End 200

2 (In Thousands)1. Employers Reinsurance Group $ 4,537,652

2. General Re Group 3,974,851

3. National Indemnity Company 2,666,259

4. Transatlantic Re/Putnam Re 2,336,650

5. Everest Reinsurance Co. 2,119,175

6. American Re-Insurance Co. 1,169,424

7. Odyssey America Re Corp./Odyssey Re Corp. 1,493,1188. Swiss Reinsurance America Corp. 1,283,006

9. Converium Reinsurance (North America) Inc. 1,064,112

10. Berkley Insurance Co. 940,484

11. Partner Re U.S. 755,317

12. Hartford Re Co. 702,922

13. Folksamerica Reinsurance Co. 678,728

14. CNA Re 665,93615. SCOR U.S. Group 636,725

16. AXA Corporate Solutions Reinsurance Co. 550,040

17. Gerling Global Group 479,302

18. XL Reinsurance America, Inc. 411,084

19. American Agricultural Insurance Company 389,400

20. Trenwick America Reinsurance Corporation 387,867


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LIST OFWORLDS10 LARGESTLIST OFWORLDS10 LARGEST

REINSURANCE BROKERSREINSURANCE BROKERS

GROSS REVENUES

COMPANY (MILLIONS) 2001 EMPLOYEES

Aon Re Worldwide$720.0 2,700Guy Carpenter & Co. Inc. 625.0 2,150

Benfield Group P.L.C. 401.2 1,683

Willis Re Inc. 383.0 945

JLT Risk Solutions Ltd. 121.9 N/A

Heath Lambert Group 98.0 384

Towers Perrin Reinsurance 66.5 256

BMS Group 34.0 232

John B. Collins Associates Inc. 31.1 120

HSBC Insurance Brokers Ltd. 28.7 1,694

Source: www.businessinsurance.com, January 2002


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