Insurance: Strong Assessment Mutual Insurers

Study Notes

Strong Assessment Mutual Insurers

Operate on a loss-sharing basis, where members are assessed a premium at the beginning of the policy period.
No premium is payable in advance.
Surplus is returned to policyholders as dividends if original premiums exceed operating expenses and losses.
Additional assessments are levied against members if total premiums are not enough to meet losses.
The amount of assessment that may be levied is limited by state law or the insurer's by-laws.

Risk Retention and Risk Purchasing Groups

A risk retention group (RRG) is a mutual insurance company formed to insure people in the same business, occupation, or profession.
RRGs assume and spread product liability and other forms of commercial liability risks among its members.
Formed for the primary purpose of retaining or pooling risks.
Licensed in their state of domicile and owned by their policyholders, who are business owners and shareholders.
Can offer membership to others who possess similar risks.
Only need to be licensed in one state but may insure members in any state.

Reciprocal Insurers

Organized on the basis of ownership by their policyholders.
Policyholders themselves insure the other policyholders' risks.
Each policyholder assumes a share of the risk brought to the company by others.
Managed by an attorney-in-fact.

Reinsurers and Retention Limits

Reinsurers insure insurers through a process called reinsurance.
Reinsurance is an arrangement by which an insurance company transfers a portion of an assumed risk to another insurer.
Reinsurance occurs to limit the loss any one insurer would face should a very large claim become payable.
Enables a company to meet specific objectives, such as favorable underwriting or mortality results.
The company transferring the risk is called the ceding company.
The company assuming the risk is the reinsurer.
The portion of the risk that the ceding insurer retains is called the net retention (or net line).
A typical reinsurance contract between two insurance companies is called treaty reinsurance, which involves an automatic sharing of the risks assumed.
The insurance company that transfers its loss exposure to another insurer is called the primary insurer.

Description

This quiz covers the features and operations of Strong Assessment Mutual Insurers, including premium payments, surplus distribution, and assessment limitations. Test your understanding of this type of insurance organization.