ASSOCIATESHIP

SPECIALIST
THE APPLICATION OF REINSURANCE 825
OBJECTIVE: To provide a knowledge and understanding of the operations of the reinsurance markets associated with
underwriting, accounting and claims provision.
Note to candidates: You are recommended to attempt this subject after the technical subject Reinsurance as it relies
on a knowledge of certain information gained from the study of that subject.
Knowledge
rating
UNDERWRITING AND PROGRAMME DESIGN ACCOUNTING
Designing reinsurance programmes for the various classes Accounting methods for facultative and proportional
of insurance business. 3 reinsurance, including calculations of commissions, profit
Reviewing reinsurance programmes, including the commissions, retention and release of deposits and
examination of existing programmes and alternative assumption and withdrawal of portfolios. 2
methods. 3 Common methods of calculating earned and unearned
Alternative risk transfer business. 2 premiums. 2
Underwriting and pricing proportional reinsurance, Accounting methods for non-proportional reinsurance,
including details of the portfolio, retention of the ceding including deposit or minimum and deposit premiums,
company, spread of business to be reinsured, catastrophe adjustment premiums, burning cost and reinstatement
exposure, the ceding companys record of performance premiums. 2
and the commission. 3
Underwriting non-proportional reinsurance, deciding on STATISTICS
the type of programme and terms of excess of loss treaty. 3
Statistical requirements for proportional and
Rating non-proportional reinsurance treaties for risk, non-proportional business. 2
working and catastrophe excess of loss cover. 3
Monitoring aggregate exposures. 2
Practical applications of rating catastrophe excess of loss
treaties, including the impact of inflation. 3 Uses and forms of statistical analysis for management and
financial control and for rating and reserving. 3
Deciding the contract terms, including scope of cover,
basis of accounting, premium and loss reserves and
exclusions. 3 CLAIMS
Application of underwriting principles in deciding Property and casualty reinsurance claims procedures. 2
commission terms. 3
Marine and aviation reinsurance claims procedures. 2
Excess of loss treaties, including gross premium income,
full portfolio and claims history. 3 Settlement procedures for permanent health insurance. 2

General principles of the rate-making process, including
working covers and other layers, calculating the premium
and deposit premiums.
Rating stop loss treaties.
Factors limiting the level of retention.
Factors influencing retention, including insurers assets,
size of portfolio, types of spread of risks and pattern of
losses.
Reinsurers attitude to risk and risk limitation.
Impact of financial policy, including cash flow, and
corporate attitude to risk.
Financial accounts, management expertise and underwriting
philosophy in relation to property and casualty business.
Factors which influence the appropriate form of
reinsurance; estimating the reinsureds exposures and
the amount of reinsurance required.
Advantages and disadvantages of the different forms of
reinsurance.
Constraints on freedom of choice for reinsurance
programmes, including compulsory cessions, exchange
control and deposit of premium and loss reserves.
Objectives, advantages and disadvantages of reciprocity.
Disadvantages of certain forms of retrocession and the
dangers of the spiral.
Arranging the required reinsurance programme, including
selection of markets, reinsurers and brokers.
Financial considerations regarding deposits, including the
payment of interest and alternatives to cash deposits. 2
3 Establishment of reserves for property, casualty, marine,
3 aviation, permanent health insurance business, including
methods of calculation of reserves and incurred but not
2 reported losses. 2
3 GOVERNMENT REGULATION AND
2 INTERVENTION
Regional reinsurance pools and their role in risk retention
2 and distribution. 2
Freedom of services in reinsurance. 3
2 Use of compulsory cessions and restrictions of
establishment. 1
Government regulation of insurance and reinsurance in
3 the UK, within the rest of the EU, the USA and other major
economic areas. 2
3 Indirect government restrictions including exchange
controls, solvency regulations and deposits and taxation. 2
Authorisation of insurers and reinsurers in the UK, the EU
3 and the USA. 2
2 Monitoring solvency and compliance with regulations
governing insurance and reinsurance companies of the
2 UK, the EU and the USA, including annual returns to the
DTI, solvency margins and valuation regulations. 2
2 Rules relating to insolvency in the UK, the EU and the USA;
schemes of arrangement, etc. 2

59
ASSOCIATESHIP
SPECIALIST
FINANCIAL ASPECTS
Investment principles and practices of reinsurers.
Choice of investments and their alternatives.
Considerations for investment of a reinsurers fund with
particular reference to type of investment and relationship
of investment to liabilities.
Use of management accounting procedures, including the
analysis of operating costs and expenses, performance
standards, budgetary and financial controls.
Taxation aspects of a reinsurers operations.
Year end published reports and accounts under the
Companies Act 1985 as amended by EU legislation.
Structure of underwriting accounts, including annual, 24
and 36 month systems.
Evaluating security including use of rating agencies.
Knowledge ratings
Each sub-topic has been designated a numerical rating as follows:
1 General background awareness necessary.
2 Requires a knowledge of the major elements of procedures or
concepts and their uses.
3 Requires the ability to evaluate concepts, issues, policies and
procedures, together with an understanding of associated aspects
of these items and their application to various situations.
60
Study materials
2
The following list provides details of various publications which may
2 assist with your studies. The primary text for this syllabus is shown in
bold type. Periodicals and publications listed as additional reading
will be of value in ensuring candidates keep up to date with
3 developments and in providing a wider coverage of syllabus topics.
The reference materials cited are authoritative, detailed works which
should be used selectively as and when required.
3
1 Primary text
Coursebook 825: The application of reinsurance. The Chartered
2 Insurance Institute.
3
2
Additional reading
Reinsurance. R. L. Carter. 3rd edition. London: ReActions in
association with the Mercantile & General Reinsurance Company,
1995.
Reinsurance in practice. Robert Kiln. 3rd edition. London: Witherby,
1991.
Reinsurance underwriting. Robert Kiln and Stephen Kiln. 2nd edition.
London: LLP, 1996.
Marine reinsurance. Robert H. Brown, Peter B. Reed.
Reference materials
Reinsurance principles and practice. Klaus Gerathewohl and others.
Karlsruhe: Verlag Versicherungswirtschaft, 1980-82.
Reinsurance clauses. LIRMA. 2nd edition. London: London Insurance
and Reinsurance Market Association, 1992.
Reinsurance law. John S. Butler and Robert M. Merkin. London:
Kluwer, 1986.
Reinsurance practice and the law. Reinsurance division of Barlow
Lyde & Gibert, London: LLP, 1993.
Earthquakes and volcanic eruptions: a handbook on risk assessment.
Zurich: Swiss Reinsurance Company, 1992.
Fire and accident proportional treaty reinsurance. Advanced Study
Group report 220 of the Insurance Institute of London.
Excess of loss methods of reinsurance. Advanced Study Group report
218 of the Insurance Institute of London.
The rating of pro-rata treaties. LIRMA.
Periodicals
Insurance Day. LLP Limited.
Post Magazine. London: Timothy Benn Publishing. Weekly.
ReActions. London: ReActions Publishing Group. Monthly.
Reinsurance. London: Timothy Benn Publishing. Monthly.
The Review. London: EMAP Media. Monthly.
Catastrophe Reinsurance Newsletter. London: LLP. Monthly.
Kluwer Insurance & Reinsurance Law Briefing. Kingston upon
Thames: Croner. Monthly.
Reinsurance Market Report. London: LLP. Weekly.
Financial Reinsurance & Futures Newsletter. London: LLP. Monthly.
Insurance & Reinsurance Solvency Report. London: LLP. Weekly.
Note to candidates
You are recommended to attempt this subject after the technical
subject Reinsurance as it relies on a knowledge of certain
information gained from the study of that subject.