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6/16 M97/February 2018 Reinsurance

Consider this…
Consider the situation in which the insurer has recently lost a senior underwriter (who was in charge of a department
with many years’ experience). A reinsurer may have concerns over who is going to replace them and what their
underwriting philosophy will be compared to that of the previous underwriter.

• Rating changes in the underlying business as a result of aggressive marketing tactics leading to price
reductions which could have an adverse impact on the loss ratios.
• Change in deductibles.
Additionally, if the insurer requires assistance from the reinsurer in, say, the provision of pricing tools for
the underlying business, wordings or claims assistance, this could also be reflected by a service
requirement loading.

Question 6.4

Why might reinsurers want a loading if they are required to consider a high number of special acceptances?

C Placing programmes

The successful negotiation of a reinsurance contract or programme depends on the quality and quantity
Successful
negotiation depends of the information made available to the potential parties. In many cases, reinsurers have a limited
on the quality and amount of time available to review information and make a decision that may have far-reaching
quantity of
information consequences for their company. Similarly, insurers must decide who to contract with on the basis of
imperfect information about them with potentially and equally significant consequences.

C1 Material information for reinsurers

The distribution of information is unevenly spread between the insurer and the reinsurer. The reinsurer
6 cannot make a proper assessment of the risk without receiving a fair presentation of the risk, that is,
Chapter detailed and accurate information, and may be put in a prejudiced position by quoting terms based on Reference copy for CII Face to Face Training
inadequate or erroneous data.

Essential or key data that will influence the outcome of a negotiation include both general information
about the insurer, its overall portfolio of business and the way the company is managed, as well as
specific data about the risk or particular account to be protected, as follows.
C1A Details of the client

date that the company capital structure and ownership
was established of the company

When the insurer offering
its business to a reinsurer
is previously unknown to
it, the reinsurer will want
to identify the:

knowledge and experience
company’s trading results – these of the individual underwriters
may best be identified from reviewing employed by the insurer as well as
recent balance sheets the ability and competence of the
company’s management