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Chapter 5 Features and operation of non-proportional reinsurance treaties 5/25

Question answers

5.1 It must ensure that its last layer of protection is unlimited if this is required by local compulsory third party
insurance requirements or it may find itself having to retain, in addition to its agreed retention, any loss
amounts that are greater than the total amount of reinsurance purchased.
5.2 A cash call limit allows the insurer to request the reinsurer to pay its share of any large loss over a
predetermined figure immediately, rather than having to wait for the cost to be included in the next quarterly
loss account.
5.3 Only one deductible of £5m leaving the reinsurer to pay £15.34m made up of £8.34m plus £12m less one
deductible of £5m.
5.4 Concentration and accumulation of risk arising from general urbanisation, increasing insurance penetration,
increasing insured values with inflation, and the apparent effect of changes in climate giving rise to an
increased incidence of weather-related claims.
5.5 The insurer would be entitled to aggregate its individual programme retentions and set them against the clash
excess of loss protection, but bear in mind that this cover would only respond if an insurer sustained loss to
more than one of its programme retentions; in other words it would not pay if there was only a single large
loss to one programme.
5.6 For non-proportional business, when a loss occurs the reinsurer’s cover is not exposed until the insurer’s
retained amount is exhausted so for low level losses the reinsurer escapes having to make any payment. The
reinsurer cannot expect to receive a proportion of all the original premium when it will only have to pay the
larger losses. Chapter
5.7 If a loss happens towards the end of a policy period, the reinsurer will collect relatively little premium for the 5
reinstatement. Reference copy for CII Face to Face Training