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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 ...

... sell directly to the customer, but most generate sales through the insurance agency system. A true specialty insurance program has unique characteristics that distinguish it from a standard insurance submission-say, the underwriting of a specialty class of business requiring expertise in exposure analysis, or rates and forms that deviate from normal terms and conditions to satisfy the customer's insurance needs. One often hears of a specialty program formed for restaurants, taverns, or certain construction trades, but I don't consider these specialty programs because an abundance of standard and nonstandard insurance companies will compete for this business with standard forms and rating criteria. In a genuine specialty program, only a limited number of insurance companies have: The understanding or desire to compete for the class of business The rates or forms necessary to rate or insure the exposures properly Individual reinsurance treaties in place to give the primary carrier the flexibility and capacity necessary to insure the underwritten class Keep in mind that standard reinsurance treaties, like standard ISO forms, exclude certain Liability and Property exposures, which in turn restrict the underwriter's ability to compete for many classes of business. For the most part, a program offers multiple-line coverages to their prospective clients. Exceptions include Professional Liability, Pollution Liability, Errors & Omissions, Directors & Officers, and Products Liability policies. PAs have even progressed to the point of employing loss-control representatives who have the expertise to specialize in the underwritten class. My firm underwrites the outdoor recreation industry, including such business as resorts, dude ranches, outfitters and guides, trap and skeet clubs, hunting and fishing lodges, hunting leases, snowmobile tours, RV ...

...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. ...

... 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 ...

... x No Thanks Loading.. Liability Risk Retention Act Of 1986 4/30/2013 by CompleteMarkets Editor This content has not been rated yet. LIABILITY RISK RETENTION ACT OF 1986 The following is the text of the Products Liability Risk Retention Act of 1981 as amended by the Risk Retention Amendments of 1986, creating the Liability Risk Retention Act of 1986. The amendments were passed by the Senate and The House of Representatives on October 6 and October 9, respectively. The legislation was signed into law by President Reagan on October 27, 1986. Short Title: SEC. 1. This Act may be cited as the Liability Risk Retention Act of 1986. Definitions: SEC 2. (a ) As used in this Act - (1 ) Insurance means primary insurance, excess insurance, reinsurance, surplus lines insurance, and any other arrangement for shifting and distributing risk, which is determine to be insurance under applicable State or Federal law; (2 ) liability' - (A ) means legal liability for damages (including costs of defense, legal costs and fees and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of - (i ) any business (whether profit or non-profit), trade, product, services (including professional services), premises, or operations; or (ii) any activity of any State or local government, or any agency or political subdivision thereof; and (B ) does not include personal risk liability and an employer's liability with respect to ...

... being made Information coming from branch inconsistent with information from home office Employee morale down and turnover among underwriters up Letter from company denying rumors (add extra point if you hadn't heard rumors) Change in agency contracts, especially termination or profit-sharing procedures Extensive changes in agency force (many appointments or terminations) Makes erratic changes in underwriting authority, either more or less Slowdown in paying claims Slowdown in processing return premium endorsements and audits Overall deterioration in service Much lower rates or higher commissions than similar companies Enters new lines of business or markets that other companies are avoiding Sudden withdrawal from a territory Concentrations of non-standard business in limited geographical area Wholesale mid-term cancellations or non-renewals by line of business Increased or decreased attention paid to collection of accounts current Increase in accounting differences (charging for policies they haven't issued) Change in reinsurance carriers, particularly if quality is questionable Unusual dividend payments Trouble with IRS or SEC Increase in consumer complaints to the state insurance department TOTAL POINTS. Companies with more than 10 total points and/or with a YES answer in Section I should be put on the Agency Watch List. More than 20 total points dictates the need for immediate action. There are a number of states in which markets have become scarce for some lines of business. As a result, agents have been forced to take on all willing participates. While it is not inconceivable that one of the older national carriers could get into trouble, your primary focus should be on newer companies. A.M. Best Co. has developed a list of the characteristics of companies that have become insolvent during the last several decades, and ...

...ective, many carriers and their reinsurers said, 'We don't write contractors i...

... may be available from Best's, this question might require contacting the rating or examination division of your state insurance department) . CAPITALIZATION & GROWTH FACTORS Is current policyholders' surplus (PHS) less than $5 million? No, but only for the reason outlined in factor 8. Has there been an abnormal decline or significant fluctuation in PHS in the past three to five years? No, for the same reason. Have there been any significant increases in PHS from non-operating revenues in the past three to five years? Yes. Exhibits 2 and 4 indicate that surplus would've been significantly depleted without the massive capital contributions made by the new owners in 1983 and 1984. Is the ratio of net premiums written (NPW) to PHS significantly in excess of 2:1 ? No. Due to reinsurance cedings and capital contributions to surplus, Big Red maintained this ratio at acceptable levels. During the past five years, has premium volume and/or reinsurance increased by 25% or has NPW fluctuated significantly? Yes. Exhibit 5 indicates instability in NPW, together with direct premium increases of up to 38% . CASH FLOW AND PROFITABILITY FACTORS Have there been any cash flow problems (reflected by slow/low claims payments, unearned premium returns, commissions, and so forth)? Unknown. (Because this information is usually not available from Best's, you might have to find the answer elsewhere. Have any significant combined ratios been abnormally high or increasing in the past three to five years? Yes. As shown in Exhibit 5, the overall combined ratio increased in each of the past ...