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2/12 W01/March 2018 Award in General Insurance

H1C Improving customer service
The practice of each insurer accepting only its own net share is one that would very quickly create
significant problems for placing insurance risks. The extra capacity provided, particularly by treaty
2 arrangements, enables insurers to accept much more than their own net capacity. This makes the
Chapter placing of risks much easier, especially for those independent intermediaries that deal with large risks.

H1D New business areas

When insurers decide to underwrite a new class of business they must register their intention to do so
with the authorities. Once agreed, they will need to have the support of reinsurers. Special arrangements
exist for such situations that provide an automatic facility and, therefore, extra capacity, while an insurer
is gaining experience in a particular class of business.

H2 Types of reinsurer
Reinsurers are often limited liability companies with substantial amounts of paid-up capital, sometimes
in excess of US$150 million, due to the high risk attached to the business. However, there are some
reinsurers that have far less capital, meeting only minimum statutory requirements. Many smaller
reinsurance companies operate in specialist classes of business.
The main types of reinsurer are:
• specialist reinsurance companies, that do not transact original (direct) insurance business;
• Lloyd’s syndicates; and
• insurance companies that also act as reinsurers.
Reinsurers accept risks either directly from the insurer (also known as the reinsured) or through a
reinsurance broker. They provide reinsurance for:
• insurance companies;
• Lloyd’s syndicates; and
• other reinsurers.
Reinsurers are included in this list, as they too seek to transfer some of their risks to other reinsurers.
This is called retroceding and the risk placed in this way a retrocession.
The insurer who buys the reinsurance cover is known as the reinsured, cedant or the ceding office.

Reinsurance is an international business, and insurers usually spread their risks over a number of
reinsurance companies at home and abroad. Many Lloyd’s syndicates also buy and sell reinsurance.

I Insurance professionals

Within the insurance market place there are a number of key roles, some of which we will consider now.

I1 Underwriters

When we looked at the nature of insurance in chapter 1, we talked about it as a common pool. The
contributions of many people were put in to the pool and the losses of the few were met from it. In
essence, the task of the underwriter is to manage the pool as effectively and profitably as possible.
Thinking of the role of the underwriter in this way, we could say that the main functions of the
underwriter are to:

• assess the risks that people bring to the pool;
• decide whether or not to accept the risk (or how much of it to accept);
• determine the terms, conditions and scope of cover to be offered; and
• calculate a suitable premium to cover expected claims, provide a reserve, meet all expenses and
provide a profit.