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... x No Thanks Loading.. Cut-Through Endorsements 4/30/2013 by CompleteMarkets Editor , IIABA Virtual University Faculty IIABA Virtual University Faculty This content has not been rated yet. CUT-THROUGH ENDORSEMENTS &# 160 by the IIABA Virtual University Faculty &# 160 Sometimes when an insurer encounters financial problems, cut-through endorsements will be issued. Both the primary carrier and reinsurer usually attach a cut-through endorsement to the policy. The endorsement should specifically reference the policy by number and policy term. This document by the IIABA Faculty investigates what the endorsement actually represents. &# 160 &# 160 Our "Ask an Expert" service recently received this question: &# 160 "We have just received official notification of Best downgrading one of our companies (let's call them ABC Ins. Co.) from an A- to a B+ rating. Best reportedly has them under review with ‘negative implications. ABC's press release indicated that XYZ Ins. Co. will be providing a cut-through endorsement which, and I am quoting, ‘ .. means that ABC policies issued under the agreement are backed by the A++ rating of XYZ. &# 160 "Since the cut-through endorsement is between ABC and XYZ, the insured has no direct contract with XYZ should ABC go under. What problems will we — or our clients — experience if we have to look to XYZ for coverage under the ‘indirect' contractual relationship our clients would have with XYZ? What legal or regulatory support would we have to help us deal with XYZ? &# 160 "There is debate among our staff ...

...nior executives of insurers and reinsurers, as well as experience in dealing w...

... Losses in this line should be reasonably predictable, and the firm should be reasonably able to accept risk. Internal management discipline and a willingness to commit the appropriate resources are also required. The losses should have these characteristics: Reasonably predictable Not extremely volatile Not exposed to a catastrophic loss High frequency and low severity "High frequency and low severity" means that the number of losses should be at least several dozen per year, of which most are less than $50,000. As a case in point, a large hotel would probably experience many small Workers Compensation claims but relatively few, if any, large claims. A bank can also expect to have numerous low severity Comp claims. Alternative risk financing usually involves loss severity — the exposure to large losses — by purchasing excess insurance or reinsurance. INSURANCE LINES The other question asked most often is "What lines of insurance are best for alternative risk financing?" Casualty lines — Workers Compensation, General Liability (including Products), and Auto Liability — are the best candidates for alternative risk financing. Workers Comp and Liability claims tend to be paid over long time frames, one to five years or more. Insurers of these lines generate substantial investment income on their reserves until losses are fully paid. Mid-size companies using alternative risk financing can earn the investment income on reserves that was formerly earned by an insurance company. ALTERNATIVE RISK FINANCING OPTIONS Insurers have developed many colorful titles for what amounts to a handful of alternative risk financing techniques. Methods range from guaranteed cost (for risk-averse firms) to self-insurance and captive insurance (for firms ...

...y are the roots of the problem. Reinsurers have experienced the same losses th...is problem is the vulnerability of reinsurers. Ask your primary carriers about their reinsurers and monitor their Best ratings. ...

... Losses in this line should be reasonably predictable, and the firm should be reasonably able to accept risk. Internal management discipline and a willingness to commit the appropriate resources are also required. The losses should have these characteristics: Reasonably predictable Not extremely volatile Not exposed to a catastrophic loss High frequency and low severity "High frequency and low severity" means that the number of losses should be at least several dozen per year, of which most are less than $50,000. As a case in point, a large hotel would probably experience many small Workers Compensation claims but relatively few, if any, large claims. A bank can also expect to have numerous low severity Comp claims. Alternative risk financing usually involves loss severity — the exposure to large losses — by purchasing excess insurance or reinsurance. INSURANCE LINES The other question asked most often is "What lines of insurance are best for alternative risk financing?" Casualty lines — Workers Compensation, General Liability (including Products), and Auto Liability — are the best candidates for alternative risk financing. Workers Comp and Liability claims tend to be paid over long time frames, one to five years or more. Insurers of these lines generate substantial investment income on their reserves until losses are fully paid. Mid-size companies using alternative risk financing can earn the investment income on reserves that was formerly earned by an insurance company. ALTERNATIVE RISK FINANCING OPTIONS Insurers have developed many colorful titles for what amounts to a handful of alternative risk financing techniques. Methods range from guaranteed cost (for risk-averse firms) to self-insurance and captive insurance (for firms ...

...raising their market value. And reinsurers have been willing to follow these c...

... Harriman This content has not been rated yet. The international insurance market offers a variety of benefits to independent agents and brokers. It provides a perfect tool for solidifying your Commercial Lines accounts and insulating them from inroads being made by alphabet house brokers. International insurance operations also offer an entree to new product lines and markets that will expand your facilities abroad. For example, U.S. agents can introduce their expertise in such lines as Auto, Medical, Surety, and Workers' Compensation to third-world countries that are privatizing these coverages. Canadian brokers can expand their expertise in out-of-country private Medical insurance and, potentially, Workers' Compensation. Doing business abroad can introduce agents and brokers to new international markets, both primary (with such carriers as AGF, Allianz, Generali, and Winterthur), and reinsurance/variable insurance programs (financial reinsurance, stop-loss reinsurance, catastrophe reinsurance, etc.) . The international market encompasses the national accounts division of major companies, offering creativity, capacity, and flexibility, enabling the agent or broker to approach accounts on a broad basis. Examples include Aetna, AIG, Chubb, Great American, The Hartford, and Reliance National. Agents and brokers can access the captive market either by establishing a captive for a corporate client or renting a captive to facilitate international exposures, self-insured retentions, and a potential profit center. The international market has captive facilities in such locations as Bermuda, Barbados, Ireland, Guernsey (the Channel Islands), and Luxembourg. BUILDING EXPERTISE AND INTERNATIONAL KNOWLEDGE AIG Chairman Hank Greenberg highlighted the success of operating internationally at the 1992 IMMS ...

... Harriman This content has not been rated yet. The international insurance market offers a variety of benefits to independent agents and brokers. It provides a perfect tool for solidifying your Commercial Lines accounts and insulating them from inroads being made by alphabet house brokers. International insurance operations also offer an entree to new product lines and markets that will expand your facilities abroad. For example, U.S. agents can introduce their expertise in such lines as Auto, Medical, Surety, and Workers' Compensation to third-world countries that are privatizing these coverages. Canadian brokers can expand their expertise in out-of-country private Medical insurance and, potentially, Workers' Compensation. Doing business abroad can introduce agents and brokers to new international markets, both primary (with such carriers as AGF, Allianz, Generali, and Winterthur), and reinsurance/variable insurance programs (financial reinsurance, stop-loss reinsurance, catastrophe reinsurance, etc.) . The international market encompasses the national accounts division of major companies, offering creativity, capacity, and flexibility, enabling the agent or broker to approach accounts on a broad basis. Examples include Aetna, AIG, Chubb, Great American, The Hartford, and Reliance National. Agents and brokers can access the captive market either by establishing a captive for a corporate client or renting a captive to facilitate international exposures, self-insured retentions, and a potential profit center. The international market has captive facilities in such locations as Bermuda, Barbados, Ireland, Guernsey (the Channel Islands), and Luxembourg. BUILDING EXPERTISE AND INTERNATIONAL KNOWLEDGE AIG Chairman Hank Greenberg highlighted the success of operating internationally at the 1992 IMMS ...

... MARKETS AREN'T ALWAYS GOING TO COME TO YOU! by Andrew Barile One of the most important responsibilities of agents to themselves and their agencies is to maintain posit.. All Articles by Andrew Barile Comments (0 ) Discovering New Niche Programs In Commercial Lines This content has not been rated yet. Andrew Barile , CompleteMarkets Editor 4/30/2013 12:00:00 AM DISCOVERING NEW NICHE PROGRAMS IN COMMERCIAL LINES byAndy Barile Niche programs in Commercial Lines are an outgrowth of the Property/Casualty insurance industry's efforts to tailo.. All Articles by Andrew Barile Comments (0 ) Finding Markets: The Specialty Program Consultant This content has not been rated yet. Andrew Barile , CompleteMarkets Editor 4/30/2013 12:00:00 AM FINDING MARKETS: THE SPECIALTY PROGRAM CONSULTANT by Andrew Barile While a reinsurance intermediary operates between the ceding insurance company and the reinsurance company market, the.. All Articles by Andrew Barile Comments (0 ) If The Niche Fits: Designing The Niche Program Questionnaire This content has not been rated yet. Andrew Barile , CompleteMarkets Editor 4/30/2013 12:00:00 AM IF THE NICHE FITS: DESIGNING THE NICHE PROGRAM QUESTIONNAIRE by Andy Barile You've done your research and have assessed the potential of a niche insurance marketing program thoroughly.. All Articles by Andrew Barile Comments (0 ) Ten Reasons Why Agents Need A Strategic Advisory Board This content has not been rated yet. Andrew Barile , CompleteMarkets Editor 4/30/2013 12:00:00 AM TEN REASONS WHY AGENTS NEED A STRATEGIC ADVISORY BOARD by Andrew Barile Privately owned retail agents, wholesalers, and ...

... affect the industry, attend trade seminars and conventions, etc. Work only with specialty carriers. Present them with a written proposal in bullet format that covers: the history of the industry and its need for a specialty program; underwriting guidelines; laws and regulations affecting the industry and its risks; insurance forms for specialty needs; recommended rates; marketing plans; and premium projections. Make sure to base the proposal on reliable sources, rather than nebulous guesstimates. For example, use quantitative risk analysis and loss projections to support the rates you recommend. You and your staff should do this statistical heavy lifting — after all, you're the experts. If you lack the time, resources, or skills to create a professional proposal, hire a consultant with expertise in specialty programs. Obtain a specialty program reinsurance treaty that provides flexibility and accountability. Negotiate equitable commission and profit-sharing arrangements. Make sure that 50% of your profits come from program underwriting. If you don't believe the program will generate underwriting profits, why should the insurer and reinsurer support you? Before negotiating commissions, analyze every aspect of the program's administrative and marketing expenses — and be sure not to underestimate these costs. File the program's rates and coverages on an admitted basis. Trying to administer a surplus-lines program on a regional or national basis can turn into a nightmare! Finally, bear in mind the admonition of baseball immortal Branch Rickey: Luck is the residue of design. Thomas S. Gillingham, Sr. is president of Gillingham & Associates, a designer and marketer of specialty insurance programs. He can be reached at G& ...