Description:
Per occurrence (catastrophe) excess of lossThis reinsurance method is identical to the "Excess per Risk of Reinsurance", except that the policies are designed to account for an accumulation of losses from a single catastrophic event. As catastrophic events can result in significant losses, the insurer may find it necessary to cede parts of the risk to different reinsurers, or the assuming reinsurer may cede some of the assumed risk to others (retrocession). In non-proportional reinsurance the reinsurer does not assume responsibility for a proportional share of all losses. Therefore the distribution of premium will not be on a proportional basis. Non-proportional reinsurance is commonly arranged in a series of layers, the first of which attaches immediately to the excess of the insurer's retention, followed by as many additional layers as are necessary to generate the required total amount of capacity (per risk), or to afford such catastrophe (per occurrence) or aggregate (net retained loss) protection as deemed prudent and sufficient, given the size, geographic distribution and nature of the insurer's portfolio of business.
Policy liabilities
see Technical provision
Premium deficiency reserve
see Provision for unexpired risks
Producer owned reinsurance companies (PORCs)
Captives, or cells of protected cell companies, that are beneficially owned by the producers of the business that is ultimately reinsured into the company through an independent fronting insurer. There are additional risks associated with these companies since the producer could be in a position to influence the placing of business with its own captive and could control the level of premiums or commissions that apply.
Proportional reinsurance (pro-rata)
Under proportional reinsurance the insurer and the reinsurer share in an agreed ratio all premiums, losses, and loss expenses arising out of the original business covered under the reinsurance agreement. There are two forms of proportional reinsurance in the non-life business: Quota Share and Surplus Share. As a general rule, life insurance companies establish limits of retention. These limits, which may vary by age at issue, plan, or substandard classification, are the amounts which the insurer has decided it can safely retain at its own risk for newly issued policies. A schedule of limits of retention also includes limits for supplemental benefits such as disability and accidental death. These limits may or may not be independent of the limits for life insurance benefits. With these limits of retention established for all the forms of coverage issued, an insurer makes reinsurance arrangements with one or more reinsurers to take care of those applications on which the amounts are in excess of the established retention. In life business, proportional reinsurance comprises the following: Yearly Renewable Term (YRT) or Risk Premium Reinsurance Basis, Coinsurance Basis, Coinsurance with Funds Withheld and Modified Coinsurance Basis.
Prospective cover
Reinsurance cover that serves to reduce volatility in current and future premiums and claims patterns.
Protected Cell Company (PCC)
A single company consisting of a core and an indefinite number of cells, which are kept legally separate from each other. Each cell has assets and liabilities attributed to it, and its assets cannot be used to meet the liabilities of any other cell. The company will also have non-cellular (core) assets, which may be available to meet liabilities that cannot be attributed to a single cell. A PCC can create and issue shares ('cell shares') in respect of any of its cells but the company is managed by a single Board. [Equivalent terms: Segregated Account Company (SAC), Segregated Portfolio Company (SPC)]
Provision for unearned premiums
Amount on the balance sheet representing that part of premiums written on unexpired policies to be allocated to the following financial year, or to subsequent financial years. [Equivalent term: Unearned premium reserve] [Related definition: Provision for unexpired risks]
Provision for unexpired risks
Amount set aside on the balance sheet in addition to unearned premiums with respect to risks to be borne by the insurer after the end of the reporting period, in order to provide for all claims and expenses in connection with insurance contracts in force in excess of the related unearned premiums and any premiums receivable on those contracts. [Equivalent term: Premium deficiency reserve] [Related definition: Provision for unearned premiums]
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