Professional Liability Reinsurance: RPLU (Questions + Answers) Solved
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Professional Liability Reinsurance: RPLU
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Professional Liability Reinsurance: RPLU
Some well-known lawsuits, which involved corporate malfeasance and alleged improper
accounting practices, include - ️️Worldcom, Enron, and Cedant. Each of these
cases resulted in tremendous costs for litigation, generating settlements of $6.2 billion,
$7.2 billion, and $3.7 billion respectiv...
Professional Liability Reinsurance:
RPLU
Some well-known lawsuits, which involved corporate malfeasance and alleged improper
accounting practices, include - ✔️✔️Worldcom, Enron, and Cedant. Each of these
cases resulted in tremendous costs for litigation, generating settlements of $6.2 billion,
$7.2 billion, and $3.7 billion respectively
Define reinsurance and describe its role in the insurance industry. - ✔️✔️Reinsurance
is called insurance for insurance companies or a form of financial risk transfer. It is a
mechanism insurance companies may use to protect their businesses from potential
catastrophic losses.
This risk management tool works by shifting all, or a portion, of the loss exposures the
insurer assumes to a reinsurer. Reinsurance helps insurance companies increase the
availability and security of insurance policies.
What was the total insured lossses for Hurricane Katrina? - ✔️✔️Hurricaine Katrina
reached approximately $60 Billion, that is $41.1 billion of insured losses, $16.1 billion in
flood losses under the national Flood Insurance Program, and up to $3 billion for
offshore energy facility claims.
The total
estimated settlements for securities class action claims from 2000 to 2010 is -
✔️✔️more than $28.3 billion
With these significant financial losses, how do you think insurance companies manage
to stay in business? - ✔️✔️One way insurance companies survive catastrophic events
such as hurricanes, earthquakes, terrorism, and securities class-action lawsuits is
through reinsurance.
Utmost Good Faith - ✔️✔️•Implies that a reinsurance relationship involves a high
degree of trust between the parties in all of their business transactions.
•Requires a level of trust necessary between the cedant and reinsurer that maintains a
sustainable business relationship.
Follow the Fortunes - ✔️✔️•Means that there must be a reasonable basis on which the
insurer based its decision and concluded that coverage applies under its policy.
•Is designed to prevent disputes and protracted litigation in which reinsurers disagree
with claims the cedant paid.
Capacity - ✔️✔️•Is the insurer's or reinsurer's financial ability to assume the maximum
amount of coverage they are allowed to assume within a given period.
,•Permits the cedant and reinsurer to assume exposures only if the exposures are
determined to be within each one's capacity.
Reciprocity - ✔️✔️•Is a reciprocal reinsurance arrangement in which a minimum of two
insurance companies agree to reinsure a portion of each company's insurance
obligations.
Syndicate - ✔️✔️•Is a facility set up to transact reinsurance coverage among several
reinsurers.
•Is composed of a dosed group of financial backers called members.
•Allows each individual member to liability independently and underwrites on its own
behalf.
•Is open for a limited time to write business and to handle claims.
Explain the relationship between the Insured and insurer. - ✔️✔️The insured
(policyholder) purchases insurance coverage from an insurer (cedant/reinsured) by
paying a premium. The insurer assumes the exposure to possible future losses covered
by the policy that the insured purchases.
Explain the relationship between the Cedant/reinsured and reinsurer - ✔️✔️The
cedant/reinsured is the insurance company that transfers exposures to another
insurance company, called the reinsurer. Both insurer and reinsurer are bound by a
reinsurance agreement to perform their agreed-upon obligations. The cedant/reinsured
must pay premiums to the reinsurer and fulfill other contractual obligations (such as
claims reporting provisions), and the reinsurer must pay its share of the losses the
cedant/reinsured incurs.
Explain the relationship between the Reinsurer and retrocessionaire - ✔️✔️The
reinsurer may also transfer/shift all, or a portion, of the exposures it assumes to another
reinsurer, called a retrocessionaire. This transaction is called retrocession.
Explain how the following principles are related to reinsurance: Utmost Good Faith -
✔️✔️The duty of utmost good faith requires a high level of trust in all dealings between
the cedant/reinsured and reinsurer. The cedant/reinsured is expected to disclose all
material information about the exposures ceded to the reinsurer. The reinsurer is then
required to fulfill its financial obligations to the cedant/reinsured when those obligations
come due. This principle is implied, if not explicitly stated, in every reinsurance contract.
Explain how the following principles are related to reinsurance: Follow the Fortunes -
✔️✔️When specified in a reinsurance agreement, follow the fortunes literally means
that a reinsurer must follow the fortune or fate of the cedant/reinsured. Therefore, the
reinsurer is bound by the claims decisions the cedant/reinsured makes. This principle
requires the reinsurer to pay the cedant/reinsured, assuming that the cedant/reinsured
has made all claims decisions in good faith. The reinsurer cannot dispute the claims
, decisions of a cedant/reinsured, except when evidence of bad faith on the part of the
cedant/reinsured exists or when the claims paid are clearly outside the policy's scope.
This doctrine is implied in all reinsurance contracts.
Explain how the following principles are related to reinsurance: Capacity -
✔️✔️Capacity is the maximum amount of liability that an insurance company is allowed
to assume, either on a specific policy or in the aggregate, as restricted by insurance
regulators in order to maintain the insurer's financial stability.
Explain how the following principles are related to reinsurance: Reciprocity -
✔️✔️Reciprocity is the exchange of reinsurance between two or more companies. It
may be defined as a reciprocal reinsurance arrangement in which a minimum of two
insurance companies agree to reinsure a portion of each other's insurance obligations.
In short, it is an agreement between two or more insurance companies to reinsure each
other.
Explain how the following principles are related to reinsurance: Syndicate - ✔️✔️A
syndicate is a group of financial backers that provides reinsurance to its members.
These members may engage in the process of syndication, in which more than one
policy that jointly covers an insurance exposure is issued.
Distinguish reinsurance from: Coinsurance - ✔️✔️Coinsurance exists when the risks
for certain insurance coverage are shared by two or more insurers who are directly and
primarily bound to the insured per the insurance policy's terms and conditions.
Reinsurance, on the other hand, is an exclusive agreement between the
cedant/reinsured and the reinsurer that does not create a direct relationship between
the insured and the reinsurer.
Distinguish reinsurance from: Partnership - ✔️✔️Partnership implies that two or more
individuals or entities have similar knowledge, share results on an equivalent basis, and
can terminate their relationship when desired. Reinsurance is not a type of business
organization. It is a risk management tool in which an insurance company cedes all or
part of the exposures it assumes to another insurance company.
Distinguish reinsurance from: Banking - ✔️✔️Both reinsurance and banking provide
financial services. Banks receive deposits and make loans to others in return for
interests paid on those loans. Reinsurance is a transfer of liability. Reinsurers receive
premium for the liability assumed.
Distinguish reinsurance from: Syndication - ✔️✔️Syndication is the issuance of more
than one policy jointly covering an insurance exposure. In reinsurance, liabilities
assumed are several and not joint. The failure of one reinsurer does not increase the
liabilities of the remaining reinsurers.
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