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12 12/26 M97/February 2018 Reinsurance
Chapter

Question answers

12.1 A large number of yachts moored in one location are susceptible to loss or damage all arising from the same
event and represent considerable risk accumulation.

12.2 In event of a total loss, the sum insured will be paid even if it is higher or lower than the market value of the
ship at the time of the loss.
12.3 Increases in value during the construction period may exceed any estimates on which the insurer’s line
was based.
12.4 This term refers to valuable commodities such as bullion and precious stones. Specie business, usually
written in the marine account, includes other niche products such as insurance for cash carriers and safe
deposit vaults.
12.5 A stevedore is someone who is employed in the loading or unloading of ships and can include dock workers,
dockhands, longshoremen and lumpers.
12.6 During an aircraft’s utility cycle its market value will begin to deteriorate rapidly and an agreed value settlement
will allow a reinsured to recover more than the hull is actually worth. In these circumstances a ground fire
could be started deliberately if the aircraft operator is in financial difficulties.
12.7 In the event that the facultative placement is with another insurer, the reinsured may be wary of sharing its
rating and other information with a potential competitor on other similar lines of business.
12.8 One of the advantages of straightforward quota share treaties is the ease of administration associated with
this type of reinsurance: this benefit is partially lost when the retained share is not consistent across the whole
account. The reinsurer will also take the view that its reliance on the complete absence of anti-selection is
compromised if the reinsured is able to choose its retention according to the risk category it selects.

12.9 Such a facility may be seen as an inducement to fly and a value added benefit that sets the airline apart from
its competitors. Also, in the event of a passenger sustaining injury a guaranteed payment may persuade that
passenger not to pursue a court action for negligence that could potentially prove much costlier for the aircraft
operator. Reference copy for CII Face to Face Training