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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