Notes For Ri

REINSURANCE IMPORTANT POINTS FOR PE EXAM
COMPILED BY SANDEEP SAINI, UIIC
OBLIGATORY CESSION AND COMMISSION FOR 2023-24
1. The percentage cession of the sum insured on each General Insurance Policy to
be reinsured with the Indian Re-insurer(s) shall be 4% (four percent) in respect of
insurance attaching during the financial year beginning from 1st April, 2023 to 31st
March, 2024, except the terrorism premium and premium ceded to Nuclear pool
wherein it would be made ‘NIL
2. Percentage of commission on obligatory cession for different classes of business

shall be as follows:
i) Minimum 5% for Motor TP and Oil & Energy insurance.
ii) Minimum 10% for Group Health insurance.
iii) Minimum 7.50% for Crop Insurance.
iv) Average Terms for Aviation insurance.
v) Minimum 15% for all other classes of insurance business.
3. No profit commission is payable if the loss ratio exceeds 78%.
Profit commission shall not exceed 14%.The Indian Re-insurer shall share the profit
commission, on 50%:50% basis, with the ceding insurer based on the performance
and surplus of the total obligatory portfolio of the ceding insurer, after factoring the
following:
i) Incurred loss % (to be worked at the end of 3 financial years).
ii) Management Expenses at 2%.
iii) Profit at 5%.
iv) Commission at 15%.
v) Loss ratio at 50% to 78%
4. Insurance Companies in India

 27 General Insurance Co.
 23 Life Insurance co.
 1 Reinsurance
 5 standalone health
 11 Foreign Reinsurance Branches
5. GIC Re is manager for Indian Market Terrorism Risk Insurance Pool (IMTRIP),
The FAIR Natural Catastrophe Reinsurance Pool (FNCRIP) and India Nuclear
Insurance Pool (INIP), Marine Hull Insurance Pool.
6. Reinsurance programme should be submit before 45 days of start of FY and

Treaty documents within 30 days of FY.
HISTORY OF REINSURANCE
1. Reinsurance provides financial stability to insurance companies by increasing

their solvency.
2. Reinsurance is always a contract of indemnity.
3. The relation between the insurer and the reinsurer is based on the principle
of “Uberrima fides”, i.e. utmost good faith.
 In facultative reinsurance, the insurer has to provide the reinsurer with all
information he needs to evaluate the risk correctly, in automatic (or obligatory)
reinsurance the principle of “uberrima fides” is of utmost importance.
4. The reinsurer only shares the “insurance fate”- in other words, he is not affected by
the insurer’s “commercial fate”
5. In the history of marine insurance the oldest known reinsurance contract

was concluded in 1370 in Genoa.
6. The first reinsurance contract in fire insurance business was concluded in

1821.
7. In Switzerland, the first reinsurer to be formed was the Swiss Reinsurance

Company, which started business in 1863.
8. The Munich Reinsurance Company was founded in 1880.
9. Initially, reinsurance business was confined to facultative transactions.
10. Automatic forms of reinsurance known as treaties
11. Excess of loss cover was the most significant development in reinsurance in the
past 100 years. This form of reinsurance filled a real gap for property policies which
were extended to cover catastrophe hazard
12. In 1956: India Reinsurance Corporation, a professional reinsurance insurer was

formed by general insurance companies operating in India and it started receiving
voluntary quota share cessions from member companies
13. In 1961: The government made it compulsory by statute on the part of every
insurer to cede.
14. In 1966: Indian Insurance Companies Association initiated the formation of

Reinsurance Pools in Fire and Hull to increase the retained premiums in the
Country.
15. General Insurance Corporation of India (GIC) formed under the General
Insurance Business (Nationalisation) Act, 1972.
16. SWIFT is an acronym for "Single Window International Facultative and

Treaty"
17. GIC Re is protected for its own retention through Risk and Catastrophe
Excess of Loss reinsurance programmes. Further, GIC Re has a long term umbrella
excess cover via ART (Alternative Risk Transfer).
BASIC OF REINSURANCE
1. Objectives of Reinsurance
 Increasing his capacity to handle larger risks
 Stabilising his operating result
 Increasing the chances of making a profit
 Ability to write untested and new risk exposures
2. Functions of reinsurance
 Increased Capacity
 Financial Stability
 Stabilisation of Claims Ratio
 Accumulation of Claims under Different Classes
 Spread of Risks
 Protection of Solvency Margins
 Stabilise Profitability
3. Types of Reinsurance
 Facultative reinsurance
 Treaty reinsurance
4. Facultative reinsurance: Facultative reinsurance is defined as “a reinsurance

contract under which the ceding insurer has the option to cede and the reinsurer has
the option to accept a specific risk of a specific insured.
5. This is a method of reinsuring risks on an individual basis.
6. When reinsuring facultatively the insurer obtains reinsurance coverage before

accepting to insure a client.
7. High administrative costs in this method.
8. Limitations of Facultative reinsurance:

 the use of skilled personnel and technical resources
 necessary personnel with knowledge and capability to underwrite
 involves more administrative work
9. Types of Facultative reinsurance

 Proportional
 Non-proportional basis (Excess of loss Xs)
10. Treaty reinsurance consists of an agreement between the original insurer and
reinsurer whereby the reinsurer automatically accepts a certain liability for all risks
falling within the scope of the agreement.
11. The reinsurer may not decline risks falling within the scope of the agreements and
the insurer must allow all risks coming within the scope to be covered.
12. Treaty reinsurance provides automatic cover.
13. In treat reinsurance administrative costs are much lower than those applying to
facultative reinsurance.
14. Treaties remain in force for long periods of time and are renewed on a fairly
automatic basis unless a change in terms is desired.
15. Agreements between the ceding insurer and the reinsurer are by means of written
and agreed treaties but this is not in case of facultative reinsurance.
16. When a reinsurance company reinsures another reinsurance company, the

process is known as Retrocession.
17. Types of Treaty reinsurance

 Proportional ( 1. Surplus 2. Quota share)
 Non-proportional basis (Excess of loss Xs)
18. Facultative Obligatory treaty is a contract of reinsurance whereby the ceding

insurer may cede risks of any agreed class of insurance which the reinsurer must
accept if ceded.
 This form is therefore a combination of facultative and treaty forms.
 It can be placed during weak reinsurance market conditions
 The ceding commission for facultative obligatory treaties is progressively less
than the quota share and surplus treaties
 To arrange automatic additional capacity for surplus.
 To facilitate writing of high value exposures or to deal with high accumulation.
 Where net retention is lowered on account of the degree of hazard.
PROPORTIONAL REINSURANCE
1. Proportional Reinsurance: The reinsurer shares liabilities of the insurer along

with sum insured, premiums and claims in the same proportion as per
agreement in the treaty.
2. Proportional Reinsurance: Additional earning exists where ceding commission

exceeds actual acquisition cost and expense, and could assist in improving
Combined Ratio
3. Surplus Reinsurance: the ceding insurer decides what part of the original
insurance he wishes to retain for his own account and reinsures (cedes) the balance
with a reinsurer.
4. Surplus Reinsurance: The higher level of surplus, such as second and third
surplus would have lower ceding commission as compared with the first surplus
treaty.
5. Surplus Treaty form the core of the most reinsurance programmes.
6. Under surplus method the ceding insurer decides the limit of liability which
he wishes to retain on any one risk or class of risks. This limit is known as the ceding
insurer’s retention.
7. A ceding insurer`s retention out of sum insured for itself is called a “line”.
8. There are two ways in which the limits of surplus can be stated:
 Sum Insured
 PML (Proable Max Loss)
9. In PML basis surplus reinsurance the insurer’s retained premium has increased
and premium outgo on reinsurance is decreased.
10. If the PML estimate is proved wrong by an actual loss, the insurer’s retained
share of loss and the reinsurer’s share of loss, both get unduly increased.( in same
proportion)
11. Quota Share reinsurance: This treaty is used mainly for small accounts where
the extra administrative burden of a surplus would be too great
12. It is a preferred form for retrocession of reinsurance accounts
13. Quota share treaty provide a wider spread for the net retained portfolio of the
insurer with an improved balance thus ensuring stability in profits.
14. In Quota share treaty retention of insurer or reinsured is in % form.
15. Quota Share reinsurance has further two types

 Fixed Quota Share
 Variable Quota Share
16. Fixed Quota Share: A type of proportional reinsurance in which the reinsurer
assumes an agreed percentage of each risk and shares all premiums and losses
accordingly with the reinsured.
17. Premiums and claims are subject to the same percentages.
18. Variable quota share is a method in which the % of retention varies for different
limit of sums insured and reduces with increase in limit of sum insured. This can be
graduated to align with occupancy of risk
19. The quota share treaty is more profitable to a reinsurer.
20. Quota share treaties usually receive a higher rate of ceding commission.
21. Quota share method is adopted for short-term specialised requirements rather
than as a long term arrangement.
22. Under quota share reinsurance, the ceding insurer passes a large share of
his premium income (and his profit) to his reinsurer.
23. Quota share reinsurance is use by a newly established insurer with low capital in
relation to the insurance business.
24. It is used by a ceding insurer entering a new class of insurance business or a new
territory as it enables the ceding insurer to enter the new business
25. Treaty as a document is an agreement between a ceding insurer and his

reinsurers to automatically accept risks that the ceding insurer intends to share.
26. The amount ceded to a surplus treaty is normally expressed in the number
of “lines” it contains.
27. A “line” is equal to the ceding insurer’s retention.
28. Second surplus treaty: If the sum insured exceeds the limit of treaty, then
ceding insurer has the option to reinsure by a further additional treaty which is called
as Second surplus treaty.
29. The first surplus treaty would have any surplus over and above the ceding
insurer’s retention allotted to it first and in priority to any other reinsurance.
30. Class of Business Covered : The treaty will contain a description or list of
classes of business covered e.g. burglary insurances, contractors all risks.
31. Territorial Scope: : The areas of the world to which the treaty applies are listed.
Where treaties are on a ‘worldwide’ basis, the United States of America and Canada
exposures are usually excluded.
32. Marine and Aviation treaties usually have a ‘worldwide’ scope.
33. Underlying Basis are Risk-attaching basis and Loss-occurring basis
34. Risk-attaching basis: A basis under which reinsurance is provided for all claims
from the ceding insurer`s underlying policies incepting during the period of the
reinsurance contract are covered even if such claims occur after the expiration date
of the treaty agreement.
35. Loss-occurring basis : A basis under which all claims occurring during the
period of the treaty, irrespective of when the underlying policies incepted, are
covered. Any claim occurring after the expiration date of treaty is not covered.
36. Bordereaux :A general practice under surplus treaties is for the ceding insurer to
provide the reinsurers with a list detailing the risks ceded to the treaty.
37. Bordereaux gave details of:

a) Name of insured;
b) Class of risk;
c) Sum insured;
d) Premium rate, ceding insurer’s retention;
e) Amount reinsured and
f) Period of insurance.
38. The bordereaux is submitted monthly or quarterly as agreed between the parties.
39. In proportional reinsurance the reinsurance premium paid by the ceding insurer to
the reinsurer(s) is a percentage of the original premium paid by the insured.
40. The percentage paid to the reinsurer(s) is the same as the percentage of the
sum insured ceded by the ceding insurer
41. In proportional reinsurance the premiums for any risks excluded from the treaty
and return premiums due under cancelled policies are not included in the reinsurance
premium.
42. In proportional reinsurance Commissions paid by the ceding insurer to agents

and brokers are not deducted from the reinsurance premium.
43. A claim falling within the scope of a treaty will be shared between the ceding
insurer and his reinsurer in the same proportions as the original sum insured was
Reinsured. E.g Sum insured 100000/-, Retained 30000/-(30%), ceded 70000/-
( 70%), Loss is 80000/- then Claim payable by the Reinsurer is 56000/-.
44. The reinsurer’s liability is not limited to his share of the claim paid by the ceding
insurer to his insured claimant.
The reinsurer is also liable for his share of claims’ costs such as:
i. Legal fees,
ii. Assessor’s fees etc
45. Any recovery, whether by means of salvage or by the exercise of contribution and
subrogation rights, must be shared between the ceding insurer and his reinsurer in
the same proportion as the reinsurance bears to the total sum insured
46. Claims payments are usually included in the statement of accounts and
deducted from ceded premiums due to the reinsurer
47. Under the proportional treaty. The moment the ceding insurer accepts a risk
which falls within the scope of the treaty, the reinsurer is bound for his proportion.
48. If a loss should occur before the cession was made, the reinsurer will still be liable
for the proportion that would have been ceded.
49. Under basis of underwriting year reinsurer will cover only the policies issued or
renewed on or after the inception date of the treaty as agreed with the ceding insurer
and leave the policies already in force to be covered under the previous treaty.
50. Portfolio entry premium used to cover corresponding policies in force on the
date when his new treaty agreement commenced
51. When a treaty is terminated, the reinsurer will remain liable for all policies issued
or renewed during the treaty period until these policies expire.
52. Portfolio withdrawal premium: the reinsurer may cut off the cover completely on
the date of termination by paying to the ceding insurer a portfolio withdrawal premium
corresponding to polices that are running off.
53. The facility of portfolio entry premium and portfolio withdrawal premium do not
apply to marine and aviation reinsurance business.
54. Proportional treaties are usually negotiated on a continuous basis
55. Renetention will ensure that the ceding insurer cannot accept inferior risk and
also reinsure all the risks without the consent of his reinsurer.
56. Quota Share and Surplus Combined : Reinsurance protection is provided first
by a quota share treaty agreement and followed by further protection by a surplus
treaty agreement.
57. The ceding insurer keeps his retention under the quota share treaty and usually
this retention then becomes the “line” on which the surplus treaty is based.
58. Net Line: Retention of the ceding insurer under quota share treaty.
59. Gross Line: Limit of quota reinsurance is called as Gross line. Net line plus
Reinsurance equal to Gross Line.
NON PROPORTIONAL REINSURANCE
1. Non-proportional reinsurance is also known as Excess of Loss reinsurance.
2. XL is the abbreviated form for ‘excess of loss’ and Xs is the abbreviated form for
‘excess
3. In Excess of Loss reinsurance deductible also known as ‘excess’ or ‘priority’

or ‘underlying’.
4. The excess of loss contract is not concerned with any proportionate shares of
the original sum insured, premium and claims on any one risk, but is concerned
with the amount of loss being reinsured.
5. Types of excess of loss reinsurances
 Working (Risk) Excess of Loss (XL)

 Risk Excess of Loss
 Surplus facultative & Facultative Excess of Loss reinsurance
 Catastrophe Excess of Loss ( Cat XL)
 Stop Loss or Excess of Loss Ratio reinsurance
 Aggregate Excess of Loss
 Whole Account Excess of Loss cover
 Umbrella Excess of Loss cover
6. Working (Risk) Excess of Loss (XL): It caters to the reinsured’s need for
protection against number of losses that arise out of a single accident, occurrence or
event. E.g Claim under Personal Accident Policy, legal liabilities to third parties
7. Risk Excess of Loss:“Per Risk” Excess of Loss provides protection for the
increased retention levels. This form of reinsurance is mainly used in protecting
property risks loss exposures
8. Surplus facultative & Facultative Excess of Loss reinsurance: A surplus

facultative reinsurance may be affected on an individual risk where a ‘one off’ type of
large loss may be expected to occur or Facultative XL reinsurance may be arranged
on a number of such risks.
9. Catastrophe Excess of Loss ( Cat XL): This reinsurance protects a reinsured

against an accumulation or aggregation of losses arising from an identified event
such as Earthquake, Flood, Cyclone, Riots, etc., which may affect a large number of
risk
10. Stop Loss or Excess of Loss Ratio reinsurance: This form of reinsurance
limits the aggregate amount of loss the reinsured would lose on a given class of
business in an annual period. It responds if an accumulation of losses exceeds the
deductible selected.
 This method applies to the loss ratio of the reinsured for any one class of
business.
 The cover is normally expressed in percentage term
 The Trigger: The trigger can be a pre-agreed percentage of net written premiums.
11. Aggregate Excess of Loss reinsurance: Aggregate excess of loss cover is on

the similar lines as Excess of Loss Ratio reinsurance for a defined class of business
but the cover parameters (i.e. the limit and deductible) are expressed in amounts
rather than percentages.
 In Aggregate Excess of loss, the amount applies as a trigger for cover instead of
loss percentage / loss ratio.
12. Whole Account Excess of Loss cover : A single composite cover could be
installed protecting at one go the whole business of the reinsured incorporating all
classes of business.
 This method is common in miscellaneous class of business wherein limits and
priorities are set for each different sub-class.
13. Umbrella Excess of Loss cover: This is installed to assist to cover any gap in
the various reinsurance arrangements made by a reinsured
 It offers additional limit for protection when in a catastrophe all reinsurance
arrangements are exhausted in their limits and there is a huge financial
accumulation of net retained losses from various classes of business
14. The fixing of the retention will also depend on what type of excess of loss cover
15. Retention Per Risk : These are used to reduce the insurer’s loss in respect of a
single risk.
16. The retention under the excess of loss will be fixed at an amount less than the
amount which they accept for their net account on any one risk under proportional
reinsurance arrangement.
17. Retention Per Event:The retention under this type of excess of loss is normally
more than the amount retained under each individual risk.
18. In Cat Xs Two or more risks have to be involved in a single loss before the
excess of loss is affected. In practice a `Two Risk Warranty` is included within the
contract to denote minimum accumulation from two risks.
19. Minimum & Deposit Premium(Mindip): The XL reinsurer does not know in
advance what the final premium will be and hence calculates the amount of premium
to be paid in advance as deposit premium by the reinsured.
20. I.B.N.R. (Incurred But Not Reported) Losses: These refer to anticipated loss
provisions in respect of individual claims which may take long time to get reported
and even longer time to get fully settled.
21. The premium for an excess of loss cover is usually expressed as a percentage
(the rate) of the gross premium income written by the reinsured for the type of
risk or class of business covered.
22. Gross Net Premium Income – GNPI: Gross premium income is usually
considered as being all premiums written by the reinsured during the contract period
less return premiums, cancellations, premiums on excluded risks and premiums on
reinsurances which reduce the reinsurer’s exposure (facultative reinsurances and
underlying reinsurances)
23. General factors affect the rate, the main ones being the:
 Level of excess point,

 The limit and exposure to the reinsurer,
 The class of insurance business,
 The exclusions,
 The underwriting limits of the reinsured
 The past experience of the treaty.
24. The lower the retention of the reinsured the larger the number of claims the
reinsurer can expect to exceed it, therefore the higher will be the rate.
25. Total amount of claims in excess of the retention is expressed as a ‘percentage

of the insurer’s gross premium income.
26. Burning cost: This is the ratio of actual past losses to their corresponding
premium for the same period. This can be termed as experience rating.
27. Burning Cost: (Loss paid + Outstanding)

Treaty GNPI
28. Rate on Line: When the rate is applied to the limit of cover.
29. Catastrophe covers are completely unsuitable for the burning cost method of
rating.
30. Main factors in rating a catastrophe cover are:
 Amount of retention
 The cover required
 Degree of exposure to natural perils.
31. Payback method is used for rating the Catastrophe covers
32. Burning Cost is the basis for rating working excess of loss treaty.
33. At the beginning of the treaty year an estimate is made of premium to be

collected by way of deposit. i.e Minimum rate payable by reinsured and
ii. Maximum rate chargeable by the reinsurer
 If the loss experience is lower than minimum rate then the reinsured pays the
minimum rate of premium
 If the loss experience is more than the maximum rate then the reinsurer collects
the maximum rate
34. Pure Burning Cost: The Pure Burning Cost is loaded by a suitable factor to
cover costs of acquisition, expenses of management, reserve for catastrophe, and
element of profit. It is usual to note in practice a loading of 25 to 30%
35. Pure Burning Cost: (Loss paid + Outstanding) x 100 (with 30% loading)
Treaty GNP 70
36. Reinstatement provisions are relevant for catastrophe excess of loss covers
37. Reinstatement facility is extended to Risk XL cover on free of cost basis for the
first or the first two reinstatements with any subsequent reinstatement bearing a stiff
additional premium.
38. A claim falling within the scope of the treaty will be calculated subject to the
provisions of the ultimate net loss clause.
39. For catastrophe treaty use time zone of reinsured and for others, “standard time”
40. Methods for determining which claim falls within the scope of the excess of loss
cover.
 Losses occurring basis
 Risk attaching basis
41. Losses occurring basis: all losses occurring within the contract period are
covered, no matter when the original policy was issued.
42. Risk attaching basis: claims under policies issued or renewed during the contract
period are covered no matter in which year they may occur.
43. The “risk attaching” basis is used to avoid the hazard of the reinsurer cancelling a
contract and leaving the insurer without cover for the duration of the policies.
44. Marine and aviation excess of loss contracts, because of their nature to transact
insurance on the basis of underwriting year use “risk attaching” method
PROPORTIONAL NON PROPORTIONAL

The reinsurer share the liabilities of the Not concerned with claim, sum insured and
insurer along with claim, sum insured and premium in same proportion but is concerned
premium in same proportion as per treaty. with amount of loss. Share the loss in %
1. SURPLUS Known as excess of loss
2. QUOTA SHARE 1. Working Excess of Loss
2. Surplus Faculatative and Faculative
3. Cat XL
4. Stop Loss
5. Aggregate XL
6. Whole Account
7. Umbrella XL
Continous basis Individual Basis

Retention Called as Line Retention called as Deductible, Underlying ,
Excess, Priority.
FACAULTATIVE TREATY SURPLUS QUOTA EXCESS OF

LOSS
insurer has the reinsurer the ceding the reinsurer the reinsurer
no obligation to may not insurer assumes an agrees to
agreed
cede a risk from decline risks decides percentage of indemnify the
an original insured falling within what part of each risk and reinsured
and the reinsurer the scope of the original shares all for losses that
has the the insurance he premiums and exceed a
losses
option of agreements wishes to accordingly with
specified
accepting or and the retain for his the reinsured. monetary
declining each insurer must own account Premiums and amount
proposal allow all risks and reinsures claims are identified by
coming within (cedes) the subject to the the reinsured
same percentage
the scope to balance with a
be covered reinsurer
NOTES FOR REINSURANCE CLAUSE
1. If any individual loss exceeds an agreed sum, the ceding insurer may request for
immediate settlement of loss by the reinsurer for his share (known as ‘cash loss
request’). Loss advices and accounting of losses
2. Advice to be given to the reinsurer when a loss reaches an agreed amount (often
the same figure as for cash loss) even if the ceding insurer does not request special
settlement. This is known the `preliminary loss advice' Loss advices and
accounting of losses
3. The ceding insurer has the sole right to adjust, compromise and settle claims and
the reinsurer follows the settlement (including ex-gratia payments) being liable for
his proportion of all loss adjustment expenses (excluding the insurer’s salaries and
overheads).Loss advices and accounting of losses
4. Normally the unit of currency expressed in a treaty agreement is the domestic

currency of the ceding insurer concerned. Currency clause
5. For the purpose of accounting of various foreign currencies, ceding insurers adopt
rates of exchange as at the beginning of the year. Currency clause
6. If during the year there be a fluctuation of more than 10% in the exchange rate of
any currency, then an option is provided to use a revised rate of exchange for all
transactions as from that date. Currency clause
7. The accounting and settlement will be in domestic currency but the original
currencies shall form the basis of the liability of the reinsurer. Currency clause
8. The majority of the proportional treaties operate on quarterly basis for accounting.
This can be monthly, half yearly or even yearly basis to render and settle accounts.
Accounting clause
9. special
provision regarding separate accounts for specified currencies.
Accounting clause.
10. Set-off clause method is especially important in the event of insolvency of one
party which stops to remit amounts due to the other. This clause is often challenged
by creditors and others interested in maximizing the assets of the insolvent party.
11. Set-off clause reinsurance agreements permits each party to net amounts due
against those payable before making payment.
12. Arbitration:This clause is found in all reinsurance agreements
13. Arbitration: A dispute would be referred to a single Arbitrator or to two

Arbitrators, one to be appointed in writing by each party, or in the case of
disagreement between the two Arbitrators, to an Umpire to be appointed in writing
by a mutually agreed authority.
14. Arbitration: The jurisdiction clause in an agreement would subject jurisdiction to

the ceding insurer`s country.
15. Arbitration:In which case when arbitration fails court proceedings would
need to be initiated in that country(ceding insurer`s country) much to the
administrative inconvenience of the reinsurer.
16. Intermediaries: Broker`s role: The ceding insurer`s payments to the

intermediary be deemed payments to the reinsurer.
17. Intermediaries: Broker`s role: The reinsurer's payments to the intermediary are
not payments to the ceding insurer until actually received by him.
18. Errors & omissions: This clause is designed to protect the ceding insurer
against any inadvertent delays, errors or omissions. The clause expects immediate
rectification and nothing in the clause would operate to increase the liability of the
reinsurers beyond agreed limits.
19. Access to records: Inspection by reinsurer : This intention of this clause is to

give the reinsurer the right to inspect any book or record of the ceding insurer which
are relevant to the business reinsured.
20. Access to records: The inspection, which is at the reinsurer’s expense, must be
carried out during normal office hours and the right remains available to the reinsurer
so long as any liability under the reinsurance remains unsettled.
21. Insolvency of other reinsurers : This clause is usually included in a reinsurance

agreement whereby it is stated that the loss to the reinsurer will not be increased
due to the inability of the ceding insurer to collect from another reinsurer.
22. Alterations: By mutual consent : The salient features of this clause are the
possibility of making amendments, consent of both the parties,
23. Commencement and termination: Either party shall have the right to terminate
this agreement immediately by giving the other party notice,
 If the performance of the whole or any part of this agreement be prohibited or
rendered impossible due to any law or regulation.
 If the other party has become insolvent
 If there is any material change in the ownership or control of the other party.
 If the country or territory in which the other party resides or has its head office or
is incorporated shall be involved in armed hostilities with any other country
 If the other part shall have failed to comply with any of the terms and
conditions of this agreement
24. Commencement and termination:During the term of notice of cancellation and

until its expiry the reinsurers shall accept new cessions and renew existing cessions
in the same manner and in all respects as if no such notice has been given.
25. Notice of cancellation at anniversary date” (NCAD).
26. “Provisional Notice of Cancellation” (PNC). This is worded in such a way as to

give the notice of termination and at the same time make it “provisional” to enable
the reinsurer to review the arrangement and decide on his continuation for the
ensuing year
27. There may also be provision for termination without notice in the event of certain
other circumstances stipulated in the contract. This is known as “Sudden Death
Clause”.
28. Operative clause: Reinsuring the original Risk This clause is commonly found
in all agreements and describes without any ambiguity the business coming within
the scope of a reinsurance contract
29. Operative clause tells about the :

 The method of cession is stated.
 The territorial scope is stated
 Maximum liability under the treaty
 The business as covered is stated. exclude retrocessions of inward reinsurances.
 It brings out clearly the obligatory nature of reinsuring, in that the insurer binds
himself to cede and the reinsurer binds himself to accept
 There may be some other provisions such as retention clause to protect the net
retention by working excess of loss cover, right to effect priority cessions,
‘common account excess of loss protection’ etc.
30. Downgrade clause: Protecting reinsurance security: This clause allows the
reinsured to cancel the reinsurance contract (and then seek a new reinsurer) if the
reinsurer is downgraded by the rating organizations. The triggers for these clauses
vary from a single step downgrade to a specific downgrade level
31. Index clause: At the time of payment of any claim the change in relative
monetary value shall be ascertained from the latest available Index.
32. Index clause: On payment of any claim the priority of the Company and the
maximum liability of the Reinsurer shall be increased or decreased in proportion to
the increase in the Index from the date of commencement of this Agreement to the
time of payment of the claim, provided such Index deviates by 10% or more. If the
fluctuation of the Index is below 10% the present Clause shall not be applied.
33. Claims co-operation clause :In case of an occurrence which may give rise to a
claim in excess of the limit stated hereafter, Reinsured shall immediately upon
becoming aware of such occurrence inform the lead Reinsurer the right to co-
operate with the Reinsured in the adjustment of the claim or in the investigation of
the occurrence and/or to appoint a representative to do so on their behalf.
34. Claims control clause : Whereas this policy is subject to reinsurance, it is

agreed that the reinsurers shall have complete control of the adjustment of all claims
indemnifiable under the policy, and to this end shall receive immediate notification
from the insurers of any claim or possible claim indemnifiable under the policy.
35. Business Covered: Attachment of cessions – proportional: This clause deals

with the attachment of individual cession and is used in respect of automatic forms
of reinsurance such as a treaty.
36. Surplus reinsurance and Quota share reinsurance are automatic forms of
reinsurance
37. Business Covered: Attachment of cessions – proportional: The clause may

also provide that if a loss occurs between the time of the acceptance of a risk and the
entry of the cession in the reinsurance register, the ceding insurer would retain not
less than the amount usually retained according to his rules and practice for risks of
that particular class.
38. Business Covered: Insuring clause non-proportional: This clause states in

what circumstances a recovery is available to the ceding insurer and the extent of
that recovery.
39. The two essential factors for a recovery under a non- proportional reinsurance are
that
 the ceding insurer has sustained a loss covered by the reinsurance and
 that such loss exceeded a previously agreed threshold limit, also called the
‘deductible’.
40. Business Covered: Insuring clause non-proportional specifies:

a) The amount of the deductible
b) The reinsurer’s limit of liability
c) The basis on which the reinsurance applies, namely the deductible and limit linked
to the basis of:
i. ‘Each loss each risk’ - risk excess of loss
ii. ‘Each loss occurrence’ – Catastrophe excess of loss
iii. ‘In the aggregate each annual period’ Stop loss and aggregate excess of loss
41. Underwriting: Retention and limits : If the ceding insurer introduces any
change in his business approach during the currency of the contract, the consent of
his reinsurers is necessary to ensure continuance of the reinsurance agreement.
42. Original conditions :Follow the fortunes :This clause states that reinsurances
are fully subject to the same terms and conditions as the original insurance.
43. Premium is to be paid to the reinsurer at the same rate as received by the ceding
insurer
44. If premium is paid at net rates the clause would then specify the deductions to
be made from gross rates to arrive at net rates.
45. Following the fortunes does not apply to the ceding insurer’s financial losses
and if the insurer go into liquidation, the reinsurer is entitled to his share
of premiums and will pay his share of the losses due to the insured’s of his
bankrupt ceding insurer.
46. The alternative risk financing method of `financial reinsurance` is an exception

to this traditional concept of following the fortunes.
47. Net retained lines: Protecting net retention :This is a clause which allows the
ceding insurer to effect other reinsurances in priority so that there is an additional
treaty which protects the net account only (i.e retention)
48. The insolvency clause usually forms a part of this clause I.e Reinsurers’ liability
hereunder shall not be increased due to the inability of the ceding insurer to collect
from any other Reinsurers (any amounts which may have become due from them
whether such inability arises from the insolvency of such other Reinsurers or
otherwise)
49. The Net Retained Lines clause will normally be omitted where the treaty covers
the reinsured’s gross account or where the cover operates for common account
50. Ultimate net loss: Amount for XL recovery applicable on non proportional
excess of loss treaties.
51. Ground up loss: The entire amount of an insurance loss, including deductibles
but net of salvage and recoveries is known as `ground up loss.
52. Ultimate Net Loss: is the amount of the ceding insurer`s loss which is eligible for
recovery under the terms of an excess of loss treaty.
53. Ultimate Net Loss follows the Net Retained Lines clause.
54. Ultimate Net Loss A specific provision within this clause allows claims to be
settled to the ceding insurer before all recoveries have been made and the Ultimate
Net Loss is finally determined
55. The amount of the ultimate net loss consists not only of all sums paid in respect
of the claim but also all expenditure incurred by the insurer in connection with the
claim
56. Loss occurrence : The phrase” loss occurrence “would mean all individual
losses arising out of and directly occasioned by one catastrophe.
57. Hours clause :the duration and extent of any Loss Occurrence so defined shall
be limited to:
a) 72 consecutive hours as regards to Hurricane, Typhoon, Windstorm, Rainstorm,
Hailstorm and/or Tornado
b) 72 consecutive hours as regards to Earthquake and Seaquake having the same
epicentre, Tidal Wave and/or Volcanic Eruption
c) 168 consecutive hours for any other catastrophe of whatsoever nature
58. The Company may choose the date and time when any such period of
consecutive hours commences and if any catastrophe is of greater duration than the
above periods, the Company may divide the catastrophe into two or more Loss
Occurrences.
59. Reinstatement: Restoring diminution in cover : In the event of any portion of

the limit of cover being reduced by settlement of a loss the amount of limit of cover so
reduced will be automatically reinstated from the time of commencement of the loss
occurrence until the expiry of the agreement.
60. PML excess clause: Error in the estimated probable maximum loss (PML)
When reinsurance is effected based upon probable maximum loss and the estimate
goes wrong it would adversely affect the both retained loss of the reinsured and
proportional share of loss to reinsurers. In order to protect themselves, reinsurers
incorporate this clause.
61. Extension of reinsurance cover: To cover losses continuing post

expiration of reinsurance It is likely that a reinsurance cover expires when a loss
event is in state of occurrence. This clause assists to include the consequence of
such loss beyond the expiry date as if it was within the period of reinsurance through
extended expiry of cover.
62. Cut Through endorsement : Insuring against insolvency of insurer

A cut-through provision allows a party not in privity with the reinsurer to have
rights against the reinsurer under the reinsurance agreement
63. Cut Through endorsement: clause is usually employed where the ceding
insurer has an insufficient credit rating to attract large commercial policyholders. It is
triggered on the ceding insurer's default in payment, insolvency, or upon entry of

liquidation or rehabilitation order, a time when the direct insured most needs the
security.
64. Political risks exclusion clause: this reinsurance excludes loss, damage, cost
or expense of whatsoever nature directly or indirectly caused by, resulting from or in
connection with any of the following
 War, invasion, act of foreign enemy, hostilities or warlike operations
 Permanent or temporary dispossession resulting from confiscation,
commandeering or requisition by any lawfully constituted authority;
 Mutiny, civil commotion or military uprising, insurrection, rebellion, revolution,
military or usurped power, martial law or state of siege or any of the events
 Any act of terrorism
 This endorsement also excludes loss, damage, cost or expense of whatsoever
nature directly or indirectly caused by, resulting from or in connection with any
action taken in controllings, preventing, suppressing.
RETENTION ON DIFFERENT LINE OF INSURANCE
MOTOR INSURANCE WORKING EXCESS OF

LOSS COVER
WORKMEN EXCESS OF LOSS COVER
COMPENSATION
MISC. INSURANCE SURPLUS BASIS, QUOTA
(PERSONAL ACCIDENT, WITH WORKING EXCESS
CASH IN OF LOSS
TRANSIT,JEWELLERS
BLOCK)
BURGLARY EXCESS OF LOSS COVER
MARINE CARGO QUOTA AND SURPLUS,
EXCESS OF LOSS (PER
VOYAGE PER EVENT
BASIS)
MARINE HULL SURPLUS
LIFE ASSURANCE SURPLUS
FIRE INSURANCE PROPORTIONAL AND
EXCESS OF LOSS
ENGINERRING SURPLUS AND COMBINED
SURPLUS AND QUOTE
( WHERE LESS EXP,)
IAR TREATY, FACULTATIVE
AND EXCESS OF LOSS
FOR NET RETAINED
ACCOUNT.
ALL RISK FACULTATIVE
AVIATION FACULTATIVE OR TREATY
REINSURANCE PROGRAM OBJECTIVE AND PLACEMENT
1. Points to be consider while designing the reinsurance programme.
 It should reduce the company’s probability of bankruptcy.

 It should stabilize any fluctuation in the insurer’s annual aggregate claims
experience.
 Reinsurance can be used to allow an insurer to accept risks beyond its normal
retention.
 The risk of suffering a greater liability from catastrophe must be minimised.
 Concentration of risks in any one class of business or geographical area must be
reduced.
 The programme must be flexible to accommodate increasing values due to
inflationary trends and improvements in technology.
 Newer types of cover which may be devised and issued for new developments
arising from changes in science and technology must be easily accommodated
within the framework of the programme.
 To broaden the spread of the net portfolio by obtaining participations in the
portfolio of risks of other insurers / reinsurers
 To secure technical assistance in rating, terms and conditions of cover and
processing of claims.
 Reinsurance cost should be reasonable
 Reinsurers should have good rating
 An insurer must look for continuity, the right philosophy of business, friendship
and understanding with his reinsurers.
 The reinsurance programme must be technically viable, stable and
administratively simple
2. Important Factors for Reinsurance Programme Design:
 Paid-up capital & free reserves

 Risk based capital
 Size & structure of the portfolio
 Frequency & size of losses
 Geographical location of operations
 Management, underwriting & claims handling capabilities
 Investment & liquidity policy
 Reinsurance market conditions
 Foreign exchange
 Business development & marketing plans
3. Factors Consideration in Negotiations by Reinsurer
 Ceding Insurer
 Ceding Insurer’s underwriting policy
 Underwriter
 Underwriting Policy
 Accumulations
 Leader of a treaty
 Reciprocity requirement
 Ceding Insurer’s retention
 Commission Terms
 Premium Reserves
 Market Experience
4. Reciprocal exchange of treaties enables the ceding insurer to add to his net
premiums and net profits.
5. Reciprocal exchange of treaties provides a wider spread for the net retained
portfolio of the insurer with an improved balance thus ensuring greater stability in
underwriting surplus.
6. Larger premium reciprocity has advantages such as
 Creation of larger reserves and

 Reduction of tax on profits consequently
7. The primary consideration in the placement of cargo treaties is the stability

of the reinsurance arrangements.
8. Group Underwriting: When insurers are individually small their retention levels
are very low. Where the insurers have a common management or common
ownership they may resort to group underwriting.
9. Group Underwriting: Each insurer keeps his own net retention and thereafter
cedes to the pool on priority basis up to defined limits. The business so pooled may
be protected by suitable excess of loss covers and redistributed back to the members.
10. Professional reinsurers play a very useful role in providing reinsurance capacity
and expertise and guidance where required.
11. The intermediary issues a cover note summarizing:

 The terms of placement,
 Premium
 The participating underwriters with their shares set opposite their names.
REINSURANCE ACCOUNTING AND COMMISSION
1. Accounting is the process of identifying, measuring and communicating financial

information to permit informed judgement and decisions by users of the
information.
2. Reinsurance accounting is comprehensively connected with technical, financial,
legal and underwriting aspects of reinsurance
3. Proportional Treaty Accounts :The reinsurer receives quarterly or periodical
accounts showing:
 Premiums,
 Claims paid
 Reserves released and
 Retained etc.
4. Fire and Accident Proportional Reinsurance:

 The accounts for this type of business are normally rendered on an “Accounts
Year” basis.
 The premiums are usually shown at original gross rates and the reinsurance
commission rate is then applied
5. Marine Proportional Reinsurance

 The accounts for this type of business are normally rendered on an
“Underwriting Year” basis.
 The premiums are usually shown net of acquisition costs, agency commission,
brokerage and any discount allowed to the insurer.
 The reinsurance commission will cover only the ceding insurer’s expenses. This
is usually termed as overriding commission
6. Non-Proportional Reinsurance: No commission is payable under this type of

business.
7. The function of the reinsurance commission is to reimburse the ceding insurer

with pro-rata amount of what he has paid in acquiring the business - agency
commission and expense of management.
8. Methods for Reinsurance Commission
 Flat Rate of Commission

 Sliding Scale Commission
 Overriding Commission
 Brokerage
9. Flat Rate of Commission: This is very easy to account as the commission payable
is determined by applying the agreed percentage of commission to the premiums
ceded less returns and cancellation.
10. Sliding Scale Commission: This is a method of arriving at a rate of commission

based on the loss ratio of the treaty during any one treaty year or during any one
underwriting year
11. Loss Ratio = IncurredLosses x100

EarnedPremiums
12. Earned Premiums : The premium which is proportionate to the period of

insurance or reinsurance which has expired and for which there would be no
further obligation to entertain any claim in future.
= Premiums ceded and included (Current year) + Reserve for unexpired risks
(Previous Year) -Reserve for unexpired risks (End of current year)
13. Incurred Losses
= Losses paid and included (Current year) + Outstanding losses (End of current year)
-Outstanding losses (Prevoius Year)
14. Overriding Commission : When a reinsurer receives business as an inward

retrocession, the reinsurer will allow the ceding insurer an additional commission
(overriding commission) over and above any share of the original commission that
he may pay.
15. The overriding commission payable by the reinsurer may be calculated on:
 on gross premium
 on net premium
 partial net premiums
16. Brokerage: The percentage of brokerage payable is applied to premiums written
on gross, net or partial net basis and this must be clearly stipulated in the treaty
agreement.
17. Profit commission is an additional percentage payable to a ceding insurer on

profitable treaties in accordance with an agreed formula.
18. There are two types of profit commission statements:

 Accounting Year” basis and
 Underwriting Year’’ basis.
19. A profit commission on an “Accounting Year” basis requires all transactions for
the same treaty period, without reference to underwriting year, to be included in
the same profit commission statement.
20. A profit commission on an “Underwriting Year” basis requires all transactions of

an underwriting year, without reference to accounting year, to be accounted to
the same year for the purposes of determining the profit of that underwriting year.
21. When a treaty is cancelled, where the profit commission is on an accounting

year basis, it is normal practice for no profit commission statement to be rendered
in the year it is cancelled.
22.
MEMORY BASED FROM PREVIOUS YEAR EXAMS

(Collected from Telegram/Whats app Group)
1. LINE DEFINATION
2. DEDUCTIBLE DEFINATION
3. RETENTION DEFINATION
4. RATE OF LINE MEANS
5. UNDERLYING
6. HOW MANY LISTED DIRECT GENERAL INS COMPANIES –
7. FIND ODD ONE OUT BASED ON NON PROPORTIONAL REINSURANCE? –

CAT XL,STOP LOSS
XL,MARINE XL,EXCESS LOSS
8. COMMISSION BASED ON LOSS
9. LOSS RATIO FORMULA
10. MINIMUM DEPOSIT PREMIUM UNDER WHICH TYPE OF REINSURANCE
11. REINSURANCE FOR CATASTROPHIC LOSSES-WHICH REINSURANCE
12. EACH AND EVERY RISK IS CEDED-WHAT TYPE OF REINSURANCE ?-

SURPLUS,FACULTATIVE
OBLIGATORY,OBLIGATORY TREATY,QUOTA SHARE
12. COMMISSION FOR NON PROPOTIONAL REINSURANCE – NO COMMISSION
14. CAPTIVE COMPANIES
15. PORTFOLIO PREMIUM & LOSS TRANSFERRED TO NEW REINSURER IN

NEXT TREATY IS CALLED ?
16. DOWNGRADE CLAUSE
17. IN XL REINSURANCE ,COVER LIMIT OF 7CR IN EXCESS OF 3CR .INSURER

FACED LOSS OF 2.5 LACS.WHAT AMOUNT WILL REINSURER PAY ? – NIL
18. OUTSTANDING LOSSES ASSESSED BY THE INSURER IS BASED ON

WHICH OF THE FOLLOWING ? -
ONE OF THE OPTION IS ACTUARIAL VALUATION ETC
19. CAPACITY OF THE INSURER IS ? – OPTIONS -UNDERWRITING

RESULTS,SIZE,AMOUNT OF
BUSINESS ABSORBED
19. PORTFOLIO ENTRY AND WITHDRAWL APPEARS IN WHICH QUARTER

STATEMENT ?-1,2,3,4
21. UNDER WHICH REINSURANCE, INSURER MUST NEGOTIATES TERMS AND

SCOPE OF COVER BEFORE ACCEPTING IT FROM THE CLIENT ?
22. WRITTEN PREMIUM DEFINATION
23. GNPI ABBREVIATION
24. REINSURANCE PROGRAMME SHOULD BE SUBMIT BEFORE HOW MANY

DAYS OF START OF FY? – 45 DAYS
25.CONTRACT BETWEEN REINSURER WITH ANOTHER REINSURER ? –

RETROCESSION
1. Obligatory cession to GIC Re is a type of ?

A. Surplus treaty B. Quota share C. XOL D.Facultative obligatory- This question
repeated again.
2. Obligatory cession to GIC Re is a type of ? A. Surplus treaty B. Quota share C.

XOL D.Facultative obligatory
3.Reinsurer Ceding Premium to another reinsurer for protecting his own business ?
Retrocession
4.Which of the following is Incorrect regarding treaty reinsurance ? Risks are placed
individually
5.Ground Up loss ? Close options which were confusing
6.Clause for adjustment regarding inflation ? Index clause, Downgrade clause,etc
7.Which of the following is correct regarding inward retrocession ?

A.To increase payment of claim amount
B. To achieve a lower income ratio
C. To obtain a better and wide spread of business by writing business from overseas ,
D.To spend investment income, which is derived from cash flow resulting from inward
acceptances
8. Bordeaux ? Net premium and loss sharing periodically to insurer( Reinsurance

placement is dealt by treaty slip)
9. SI limit given . Reinsured at 40 %. Claim amount given. What would be the

amount recoverable from reinsurance ?
10. Condition needed for Cat event under XOL ?

A.one or more risks in a event B. Two or more risks in a event
C.3 or more risk D.Atleast 5 risk
13. Which is not related to Reinsurance ? A.Quota share B.Surplus treaty

C.Facultative D.Floater
14. ART Full form? Alternative risk transfer
15. Insurers shares the risk over and above their retention to reinsurer ? A.Quota
share B.Surplus treaty C.Facultative D.Non Proportional
16. Commission payable to Insurer based on Loss ratio ? A.Profit commission

B.Overriding commission C.Sliding scale commission D. Flat rate commission
17. Which of the following has accounting year basis ? A. Engg B. Marine
proportional C. Fire and accident Proportional D. Fire and accident non proportional
18. Engg re-insurance issued on ? A.U/w year basis B. Accounting Year basis C.
Clean cut basis D.None
19. Ceding insurer’s retention ? A.Line B.Limit C.Cession D.None
20. Risk insured for 200 Crores and it represents 10 line surplus treaty. What is the
Insured’s Retention(Single line) ? A.20 Crores B.30 crores C.10 Crores D. 15 Crores
21. XOL problem..Claim payable asked.
22. Clean cut method ? Termination of specific treaty and changing to new insurer
23. Reinsurance treaty and slip to be filed with IRDA within ?? A. after 45 days from
commencement of financial year B. after 30 days from commencement of financial
year C. after 60 days from commencement of financial year D. after 90 days from
commencement of financial year
24. Which of the following doesn’t come under combined ratio ? A.Incurred claims B.
Administration Expenses C. Investment Income D. Acquisition Costs
25. Loss limit under XOL reinsurance represented as ? A.Vertical Layers

B.Horizontal layers C. Retention D. Line
26. Under XOL , 1ST layer consists of 10 lac ,2nd layer consists of 10 lac and 3rd
layer has 10 lac. Claim amount is 5 Lac. Amount payable by reinsurer ?? A.NIL B. 5
lac C.2 Lac D. 3 Lac
27. Surplus reinsurance is form of ? A.Proportional B. Non-Proportional C.Facultative

D.Excess of Loss
26. Which of the following treaty is used mainly for small accounts where the extra
administrative burden of a surplus can be quite large? A. Surplus treaty B.Quota
share treaty C. Facultative treaty
D.Excess of loss treaty
27. Terrorism pool is managed by ? A.GOI B. GIC Re C.IRDA D.Insurer
1. Amount kept on net for insurer, what is it called, Retention Ceded premium,
Reinsurance options
2. Treaty between two reinsurers, what is it called Retrocession
3. Gross domestic premium of all general insurers in India in Fy 21
4. Run off clause definition
5. Clean cut method, confusing options
6. Premium portfolio entry and premium withdrawal entry given to whom
7. Loss reserve deposit maintained for what and who maintains it, (gist of question,
not actual wording)
8. Captive insurer, definition based
9. 800Xs200, fac non proportional cover, loss of 600, sum insured 1000, claim paid
by reinsurer

Notes For Ri

Uploaded by

Copyright:

Available Formats

Notes For Ri

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Notes For Ri

Uploaded by

Copyright:

Available Formats

REINSURANCE IMPORTANT POINTS FOR PE EXAM

COMPILED BY SANDEEP SAINI, UIIC

OBLIGATORY CESSION AND COMMISSION FOR 2023-24

2. Percentage of commission on obligatory cession for different classes of business

3. No profit commission is payable if the loss ratio exceeds 78%.

4. Insurance Companies in India

6. Reinsurance programme should be submit before 45 days of start of FY and

1. Reinsurance provides financial stability to insurance companies by increasing

2. Reinsurance is always a contract of indemnity.

5. In the history of marine insurance the oldest known reinsurance contract

6. The first reinsurance contract in fire insurance business was concluded in

7. In Switzerland, the first reinsurer to be formed was the Swiss Reinsurance

8. The Munich Reinsurance Company was founded in 1880.

9. Initially, reinsurance business was confined to facultative transactions.

10. Automatic forms of reinsurance known as treaties

12. In 1956: India Reinsurance Corporation, a professional reinsurance insurer was

14. In 1966: Indian Insurance Companies Association initiated the formation of

16. SWIFT is an acronym for "Single Window International Facultative and

4. Facultative reinsurance: Facultative reinsurance is defined as “a reinsurance

5. This is a method of reinsuring risks on an individual basis.

6. When reinsuring facultatively the insurer obtains reinsurance coverage before

7. High administrative costs in this method.

8. Limitations of Facultative reinsurance:

9. Types of Facultative reinsurance

12. Treaty reinsurance provides automatic cover.

16. When a reinsurance company reinsures another reinsurance company, the

17. Types of Treaty reinsurance

18. Facultative Obligatory treaty is a contract of reinsurance whereby the ceding

1. Proportional Reinsurance: The reinsurer shares liabilities of the insurer along

2. Proportional Reinsurance: Additional earning exists where ceding commission

5. Surplus Treaty form the core of the most reinsurance programmes.

12. It is a preferred form for retrocession of reinsurance accounts

14. In Quota share treaty retention of insurer or reinsured is in % form.

15. Quota Share reinsurance has further two types

17. Premiums and claims are subject to the same percentages.

19. The quota share treaty is more profitable to a reinsurer.

25. Treaty as a document is an agreement between a ceding insurer and his

27. A “line” is equal to the ceding insurer’s retention.

32. Marine and Aviation treaties usually have a ‘worldwide’ scope.

33. Underlying Basis are Risk-attaching basis and Loss-occurring basis

37. Bordereaux gave details of:

42. In proportional reinsurance Commissions paid by the ceding insurer to agents

54. Proportional treaties are usually negotiated on a continuous basis

NON PROPORTIONAL REINSURANCE

1. Non-proportional reinsurance is also known as Excess of Loss reinsurance.

3. In Excess of Loss reinsurance deductible also known as ‘excess’ or ‘priority’

5. Types of excess of loss reinsurances

 Working (Risk) Excess of Loss (XL)

8. Surplus facultative & Facultative Excess of Loss reinsurance: A surplus

9. Catastrophe Excess of Loss ( Cat XL): This reinsurance protects a reinsured

11. Aggregate Excess of Loss reinsurance: Aggregate excess of loss cover is on

 Level of excess point,

25. Total amount of claims in excess of the retention is expressed as a ‘percentage

27. Burning Cost: (Loss paid + Outstanding)

30. Main factors in rating a catastrophe cover are:

31. Payback method is used for rating the Catastrophe covers

33. At the beginning of the treaty year an estimate is made of premium to be

provisions of the ultimate net loss clause.