Reinsurance - an insurance company (the ceding company) paying another insurance company
(reinsurer) to take some of the company's risk
•Reinsurers help spread the insurer's risk
CANHAM - Elements of an insurable risk
C - Calculable
A - Affordable
N - Non-catasrophic
H - Homogenous
A - Ac...
Massachusetts Property & Casualty
Insurance License Exam
Reinsurance - an insurance company (the ceding company) paying another insurance company
(reinsurer) to take some of the company's risk
•Reinsurers help spread the insurer's risk
CANHAM - Elements of an insurable risk
C - Calculable
A - Affordable
N - Non-catasrophic
H - Homogenous
A - Accidental
M - Measurable
Insurance - Transfer of risk from a person or business to an insurer
Risk - Uncertainty / Possibility of a loss
Exposure - Risks for which the insurance company would be liable
Peril - A cause of loss. House burns down, peril is the fire
Direct - Physical loss
Indirect - consequence of the direct loss
,Hazard - increases the chance of loss
Physical hazard - The hazard can be seen
Moral hazard - Dishonesty
Morale hazard - carelessness
STARR! - Method of handling risk.
S - Sharing
T - Transfer
A - Avoidance
R - Retention
R - Reduction
Contract (policy) - An agreement between the insured and the insurer
1st party - Insured (customer)
2nd party - Insurer (insurance company)
Law of large numbers - The larger the group, the more accurately future losses can be predicted
Adverse selection - Risks that have a greater than average chance of loss
,•Not wanted by insurers
•Tendency for high risk individuals to get and keep insurance
•Why insurers go through the underwriting process
•High risk = higher rate or refusal to insure
Facultative - The reinsurer evaluates each risk before allowing the transfer
Treaty - The reinsurer accepts the transfer according to an agreement called a treaty
Stock Insurer - •Owned by stockholders
•Dividend is not guaranteed
•Dividend is paid to stockholder
•Dividend is taxable to stockholders
•Issues non-participating policies
Fraternal Insurer - •Provides insurance and other benefits
•Must be a member of the society to get benefits
Reciprocal Insurer - •Unincorporated
•Members are required to pay an assessed amount if a loss to any member of the group occurs
•Managed by an attorney-in-fact
Lloyd's association - Insurance provided by individual underwriters, not companies
•Insures unusual risk
-Hole in one contest
, -Athlete's arm
-Celebrity's hair
Risk Retention Group - Liability insurance company created for policyholders from the same
industry
•For example, a car dealer's risk retention group in which only car dealers can be policyholders
Risk Purchasing Group - A group of businesses from the same industry joining together to buy
liability insurance from an insurance company
•The risk purchasing group is not the insurance company
Self-insurance - A business that pays its own claims
•Reserves funds to cover losses
•Retains risk rather than transfers
Federal government provides residual market insurance - Insurance from the state or federal
government
•War risk insurance
•Nuclear energy insurance
•Flood insurance
•Federal crop insurance
•Unemployment insurance (at state level)
•Workers' compensation (at state level)
Insurance company location - •Domestic - the state where a company is incorporated
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