FIN 341 EXAM 2 STUDY GUIDE
Chapter 5 - 8
Reinsurance ceded - Answers -the portion of risk that a primary insurer passes to a
reinsurer.
Why would you reinsure? - Answers --Enlarge financial (underwriting) capacity
-stabilize profits
-protect against catastrophic losses
-withdrawal from underwriting
-underwriting support
Facultative Reinsurance - Answers -type of reinsurance contract that covers a single
risk. It is considered to be more transaction-based than treaty reinsurance.
Treaty Reinsurance - Answers -a reinsurance contract in which a reinsurance company
agrees to accept all of a particular type of risk from the ceding insurance company. The
reinsurers in a treaty contract are obliged to accept all risks outlined in the contract.
Quota Share Treaty Reinsurance - Answers --Share all premiums and losses
-A type of pro rata reinsurance contract in which the insurer and reinsurer share
premiums and losses according to a fixed percentage. Quota share reinsurance allows
an insurer to retain some risk and premium, while sharing the rest with an insurer up to
a predetermined maximum coverage
Surplus Treaty Reinsurace - Answers --Share premiums and losses above a retention
-A reinsurance treaty in which the ceding insurer retains a fixed amount of policy liability
and the reinsurer takes responsibility for what remains. Surplus share treaties are
considered pro rata treaties, and are most commonly used with property insurance.
-
Excess-of-Loss Treaty Reinsurance - Answers --Limits ceding company's losses
-Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies
the ceding company for losses that exceed a specified limit.
Insurers Claims Adjustment - Answers -The process of determining:
-if a loss occurred
-if the loss is covered by the policy
-how much should be paid for the loss
, Insurers Claims Adjustment Objectives - Answers --prompt, fair payment of legitimate
claims
Claims Process - Answers --Validate
-Investigate
-Estimate
-Interpret
-Respond
Validate - Answers -Validity of proof of loss/occurence of loss
Investigate - Answers -the scene of the loss
Estimate - Answers -Amount of loss
Interpret - Answers -Policy Language
Respond - Answers -Approve or deny the claim
Functions of Insurers Investments (definition) - Answers -investment of premium dollars
from the time they are collected until they are needed to pay losses & expenses
Functions of Insurers Investments (objectives) - Answers --to reduce the cost of risk
transfer (subsidization_
-to make risks acceptable that would be unacceptable based on premiums alone
Chapter 2 - Answers -
Insurance - Answers -the pooling of fortuitous losses by transfer of such risks to
insurers, who agree to indemnify insureds for such losses, to provide other pecuniary
benefits on their occurrence, or to render services connected with the risk.
Basic Characteristics of Insurance - Answers --pooling of losses
-payment of fortuitous losses
-risk transfer
-indemnification
Pooling of losses - Answers --spread losses incurred by few over entire group
-average loss replaces actual loss
-law of large numbers
-"loss sharing"
What is a fortuitous loss? - Answers --unforseen and unexpected loss that occurs as a
result of chance
-Insurance does not (generally) cover intentional losses
Chapter 5 - 8
Reinsurance ceded - Answers -the portion of risk that a primary insurer passes to a
reinsurer.
Why would you reinsure? - Answers --Enlarge financial (underwriting) capacity
-stabilize profits
-protect against catastrophic losses
-withdrawal from underwriting
-underwriting support
Facultative Reinsurance - Answers -type of reinsurance contract that covers a single
risk. It is considered to be more transaction-based than treaty reinsurance.
Treaty Reinsurance - Answers -a reinsurance contract in which a reinsurance company
agrees to accept all of a particular type of risk from the ceding insurance company. The
reinsurers in a treaty contract are obliged to accept all risks outlined in the contract.
Quota Share Treaty Reinsurance - Answers --Share all premiums and losses
-A type of pro rata reinsurance contract in which the insurer and reinsurer share
premiums and losses according to a fixed percentage. Quota share reinsurance allows
an insurer to retain some risk and premium, while sharing the rest with an insurer up to
a predetermined maximum coverage
Surplus Treaty Reinsurace - Answers --Share premiums and losses above a retention
-A reinsurance treaty in which the ceding insurer retains a fixed amount of policy liability
and the reinsurer takes responsibility for what remains. Surplus share treaties are
considered pro rata treaties, and are most commonly used with property insurance.
-
Excess-of-Loss Treaty Reinsurance - Answers --Limits ceding company's losses
-Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies
the ceding company for losses that exceed a specified limit.
Insurers Claims Adjustment - Answers -The process of determining:
-if a loss occurred
-if the loss is covered by the policy
-how much should be paid for the loss
, Insurers Claims Adjustment Objectives - Answers --prompt, fair payment of legitimate
claims
Claims Process - Answers --Validate
-Investigate
-Estimate
-Interpret
-Respond
Validate - Answers -Validity of proof of loss/occurence of loss
Investigate - Answers -the scene of the loss
Estimate - Answers -Amount of loss
Interpret - Answers -Policy Language
Respond - Answers -Approve or deny the claim
Functions of Insurers Investments (definition) - Answers -investment of premium dollars
from the time they are collected until they are needed to pay losses & expenses
Functions of Insurers Investments (objectives) - Answers --to reduce the cost of risk
transfer (subsidization_
-to make risks acceptable that would be unacceptable based on premiums alone
Chapter 2 - Answers -
Insurance - Answers -the pooling of fortuitous losses by transfer of such risks to
insurers, who agree to indemnify insureds for such losses, to provide other pecuniary
benefits on their occurrence, or to render services connected with the risk.
Basic Characteristics of Insurance - Answers --pooling of losses
-payment of fortuitous losses
-risk transfer
-indemnification
Pooling of losses - Answers --spread losses incurred by few over entire group
-average loss replaces actual loss
-law of large numbers
-"loss sharing"
What is a fortuitous loss? - Answers --unforseen and unexpected loss that occurs as a
result of chance
-Insurance does not (generally) cover intentional losses
