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Chapter 11 Casualty reinsurance 11/35

Key points

The main ideas covered by this chapter can be summarised as follows:
Reinsuring a casualty account
• ‘Casualty’ is a broad category of business that is used to refer to classes that do not conveniently fit under more
specific headings.
• Liability insurance does not cover loss or damage to the policyholder or insured but loss or damage sustained by
third parties.
• Liability insurance has a high late claims potential and is also susceptible to a high risk of changes in law and legal
philosophy as well as that of technical advancement.
• Liability losses can be categorised as: bodily injury, property damage or pure financial loss.
• Significant underwriting considerations for liability reinsurance include:
– GWP for the past five to ten years;
– the insurer’s underwriting philosophy and principles;
– portfolio structure; and
– whether claims settlements include annuity and interest payments.
• If the application is for proportional treaty coverage the following additional information would be needed:
– run-off triangles on an underwriting year basis over the same period, showing paid and outstanding claims;
– details of costs including agents commission, internal costs and charges;
– reinsurance brokers’ commission;
– costs of common account excess of loss cover;
– the reinsured’s business plan; and
– assurances regarding the reinsured’s solvency.
• If the application for cover relates to a non-proportional treaty the following information would be required:
– serial loss potential from products, professional, employers’ and environmental liability business;
– individual claims information split by accident years over a minimum five-year period;
– price or wage indices to develop the cost of claims; and Reference copy for CII Face to Face Training
– information on the reinsurance required in relation to treaty structure and layering.
• The usual forms of reinsurance purchased are quota share and excess of loss treaties.
• Several casualty classes may be combined in one treaty for reinsurance purposes.
• Clash excess of loss reinsurance protects the reinsured against losses related to a single event triggering claims
from more than one policy, account or class.
Motor

• Motor insurance comprises:
– liability for third party property damage;
– liability for third party personal injury, including liability for passengers (together MTPL);
– cover for damage to one’s own vehicle (MOD); and
– benefits for accidents sustained by the driver or passengers.
• The reinsurer would wish to establish details of the insurer’s:
– premium volume;
– portfolio composition;
– cover limits for account subsets;
– ‘overseas’ exposures;
– natural peril exposures;
– management and underwriting philosophy;
– exclusion list;
– potential risk accumulation; and
– detailed loss statistics.
• In MOD insurance, accumulation risks occur especially as a result of natural hazards. The risk of accumulation
losses in MTPL plays a less significant role.
• Reinsurance cover for motor can be written on a quota share basis but excess of loss is most common. Chapter

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