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  #1  
Old 05-26-2020, 11:41 AM
Jimmy982 Jimmy982 is offline
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Default Some General Insurance/Reinsurance Questions

1)Does the residual market have reinsurance as well?
2)Can both admitted and non-admitted companies be in the residual market or just non-admitted?
3)Is there any reason you would want to be in the residual market or is that only if you can't get insurance anywhere else.
4)What are the mechanics being how losses are shared in a reinsurance facility?
5)Does retail and wholesale insurance encompass all of insurance or are there other types that fall outside of these two groups?
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  #2  
Old 05-26-2020, 03:57 PM
Noonien Soong Noonien Soong is offline
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What line(s) are you talking about? These are very broad questions. Do you mean just the US?

RE: Question 1:
From personal experience, at least workers compensation has reinsurance for the residual market, or some of it.

RE Question 3
There's no real benefit to the policyholder other than being to avoid going without insurance. Likely your coverages have higher deductibles/lower limits and more restrictive policy terms.

RE Question 4.
This is addressed in the CAS Exam 6 syllabus at present, but some residual market results are spread out by market share and companies are assessed costs by market share.

RE Question 5
Are you including Surplus lines carriers or captive insurers? In your own words please define retail and wholesale insurance.
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Old 05-26-2020, 04:41 PM
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Vorian Atreides Vorian Atreides is offline
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A few additional items to consider as well:

1) Why not?

2) What is the purpose of the residual market? What are the requirements to be part of the residual market? (Hint on the second question: you often have to show proof of being rejected by several primary carriers.)

3) See answer to item #2; but there are also situations where you might have a (property) risk that no one in the admitted market is willing to cover. That is, they'll offer you coverage, but will exclude the important aspects of coverage that you're actually looking for.

4) Too complex to really address on a message board. CAS Online Course 1 (specifically Assignment 13) covers this question very well. CAS Exam 6 covers how reinsurance is accounted for in financial documents (which is also important to know and understand, but the details of *how* various reinsurance contracts "work" aren't necessarily covered in much detail).

5) You're going to have a difficult time getting an answer to this given that most who frequent this part of the AO are US-based (with some having UK and Canadian experience/knowledge). "Retail" and "wholesale" terms are not in common (or uncommon) usage here.
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Old 05-28-2020, 03:42 PM
Jimmy982 Jimmy982 is offline
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I thought wholesale insurance is insurance offered to a small group that is not big enough to get typical group coverage which is typically offered by someone non-admitted. Would the rest of insurance be retail?

Another question I had was in regards to agents and MGA. Am I describing the relationship properly.

The MGA charge to fee to the carrier in order to write business of the carriers behalf. In order to get this business the MGA needs to use agents/brokers who in turn charge the MGA a fee for feeding them business.

If my above description is correct do MGAs need to use agents to get business. Whats to stop them from getting business themselves and cutting the middleman out?
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Old 05-28-2020, 04:08 PM
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Vorian Atreides Vorian Atreides is offline
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Quote:
Originally Posted by Jimmy982 View Post
I thought wholesale insurance is insurance offered to a small group that is not big enough to get typical group coverage which is typically offered by someone non-admitted. Would the rest of insurance be retail?
Well . . . if a risk isn't "large enough" to be rated on its own data, I think the term often used is that they'll receive a "manual rate".

I've seen where risks that are "large enough" to be rated on its own data are often termed "account pricing".

But again, this would be North American terminology.

Terms you're using here (retail/wholesale) might be used in other areas of the world.
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Old 05-28-2020, 04:28 PM
examsarehard examsarehard is offline
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Retail/wholesale usually refers to the broker and how the insurance is placed. I have never really heard it used to describe the carrier or the coverage itself.

Sometimes wholesale brokers will deal with harder to place, more specialized coverages, which is maybe what the OP is referring to?
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Old 05-28-2020, 05:47 PM
jerrytuttle jerrytuttle is offline
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Default Assigned risk versus Reinsurance facility

Here are a few miscellaneous thoughts.

In some states an individual risk is randomly assigned to each member insurance company. That company services the risk and ends up with that risk's individual premium and loss experience. That company may end up with better than average or worse than average residual experience.

In some states an individual risk is a randomly assigned to one of a small number of insurance companies for servicing. The risk's individual premium and loss experience is then ceded to the reinsurance company, and each individual insurance company gets its pro rata share of premium and loss experience. Each company ends up with identical residual experience loss ratios on a policy year basis.

In the first category, a small insurance company in a geographically large state may end up having to service (e.g., investigate and settle claims) an individual risk a long distance away from its nearest office.

In the second category, a large insurance company may want to be a servicing company if it can make a profit on the amount of money it receives to service the business compared to what it costs to service it.
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Old 06-13-2020, 10:48 AM
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Quote:
Originally Posted by Vorian Atreides View Post
Well . . . if a risk isn't "large enough" to be rated on its own data, I think the term often used is that they'll receive a "manual rate".

I've seen where risks that are "large enough" to be rated on its own data are often termed "account pricing".

But again, this would be North American terminology.

Terms you're using here (retail/wholesale) might be used in other areas of the world.
Might depend on the industry you are in? Retail and wholesale are common terms in the US. It refers to the broker market you go through. Roughly, wholesale brokers access excess & surplus markets and non-admitted carriers. Retail brokers typically access admitted carriers. If a retail broker can't place their client's insurance in the admitted market, they go to a wholesale broker to access the non-admitted market.

Some carriers offer both non-admitted and admitted insurance and may have both retail and wholesale distribution channels.
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Old 06-13-2020, 10:55 AM
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lllj lllj is offline
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Quote:
Originally Posted by Jimmy982 View Post
I thought wholesale insurance is insurance offered to a small group that is not big enough to get typical group coverage which is typically offered by someone non-admitted. Would the rest of insurance be retail?
Not really. It doesn't have to do with the size of the insured.

If a business is having trouble finding insurance in the more "standard" admitted market, then they can access insurance in the non-admitted market as an alternative. Admitted insurance has more regulation around, rates have to be filed and approved under relatively strict scrutiny, etc. For a very unique or "scary" risk (such as in a niche or seemingly hazardous industry), admitted insurers may not want to offer them a typical product for their typical rates, and hence that business can struggle to find the insurance it needs.

Enter the non-admitted market, where rates may be higher, or the policy might just be structured in a unique way, or have different limits/deductibles, or be underwritten under careful guidelines under by specialists.

The business that couldn't get good insurance in the admitted market (retail market) could be big or small.

In case you are outside the US, I don't really know how things work in London, but I think much of Lloyds is considered wholesale. I am not positive though and don't know how the distribution channels work exactly there. "Admitted insurance" could also be defined differently in different countries where rate and insurance regulation varies.

Finally, it's unclear to me if when you talk about the residual market if you mean personal auto insurance specifically or the broad E&S commercial market.

Last edited by lllj; 06-13-2020 at 10:58 AM..
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Old 06-14-2020, 10:43 AM
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Vorian Atreides Vorian Atreides is offline
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Quote:
Originally Posted by lllj View Post
Might depend on the industry you are in? Retail and wholesale are common terms in the US. It refers to the broker market you go through. Roughly, wholesale brokers access excess & surplus markets and non-admitted carriers. Retail brokers typically access admitted carriers. If a retail broker can't place their client's insurance in the admitted market, they go to a wholesale broker to access the non-admitted market.

Some carriers offer both non-admitted and admitted insurance and may have both retail and wholesale distribution channels.
Thanks for the clarification. I don't interact with a brokerage type business model for the most part, so that'll explain why the terms aren't that familiar to me.
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