What is a portfolio transfer?

What is a portfolio transfer?

Portfolio Transfer — the cession of a book of business—for example, for an insurer withdrawing from writing a certain class of risk. Since the business has already been written, it is retroactive insurance, so it is a balance sheet only transaction (transfer of assets and liabilities).

What is a reinsurance portfolio?

Portfolio reinsurance, also known as assumption reinsurance, is a type of transaction in which one insurance company transfers a large number of its existing insurance policies to another.

What is portfolio withdrawal in reinsurance?

Use. When a reinsurer enters a portfolio, it assumes the liability for risks that were already underwritten before its participation. When a reinsurer withdraws from a portfolio, it must repay the premiums collected but not yet earned.

What does LPT mean in insurance?

• Loss Portfolio Transfer (LPT) – A reinsurance transaction in which loss obligations that are. already incurred are ceded to a reinsurer. – Two party agreement – does not require policyholder consent.

How do loss portfolio transfers work?

A loss portfolio transfer (LPT) is a reinsurance treaty in which an insurer cedes policies and the loss reserves to pay them to a reinsurer. LPTs allow insurers to remove liabilities from their balance sheets, thus strengthening them, and to transfer risk.

What is retroactive reinsurance?

With prospective reinsurance, a ceding company is paid back for insured losses that could happen in the future; with retroactive reinsurance, the ceding company is paid for insured events that have already happened.

What is a portfolio premium?

The portfolio risk premium is the amount of risk your portfolio has that is above the risk-free rate. Businesses need to provide investors a return over the risk-free rate in order to get investors to invest. If it is a risk investment, the portfolio risk premium increases.

What is a reinsurance contract called?

What Is Reinsurance? Reinsurance is also known as insurance for insurers or stop-loss insurance. Reinsurance is the practice whereby insurers transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim.

What is loss transfer?

Loss transfer is a mechanism by which, under certain circumstances, automobile insurers who pay no-fault benefits (the first-party insurer) may be reimbursed by another insurer (the second-party insurer) for all or part a claim.

What is the difference between Novation and commutation?

Commutation – Usually refers to the cancellation or dissolution of a reinsurance contract in which there are profits or losses to be allocated. Novation – An agreement to replace one party to an insurance policy or reinsurance agreement with another company from inception of the coverage period.

What is ADC in insurance?

Administrative Defense Coverage (ADC) is insurance for legal expenses incurred defending actions such as: Administrative disciplinary actions.

What is the risk premium of the portfolio?

The portfolio risk premium is the amount of risk your portfolio has that is above the risk-free rate. In order to calculate portfolio risk premium, you need to know the expected return on your portfolio and the risk-free rate. Normally, investors use the 90-day Treasury-Bill rate for the risk-free rate.

Why do reinsurers use loss portfolio transfer?

Reinsurers gain the chance to generate investment income from the transferred reserves, often at a significant profit. Insurers use loss portfolio transfers to remove liabilities from their balance sheets, with the most common reasons being to transfer risk from a parent to a captive or to exit a line of business.

Which is the best definition of loss portfolio transfer?

Loss Portfolio Transfer (LPT) Definition. A financial reinsurance transaction in which loss obligations that are already incurred and will ultimately be paid are ceded to a reinsurer.

Can a reinsurance portfolio be transferred in Ireland?

Reinsurance portfolios may be transferred in accordance with the requirements of Directive 2005/68/EC (the ‘Reinsurance Directive ’). Where the portfolio transfer involves an Irish insurance undertaking additional domestic Irish insurance legal and regulatory requirements must be considered.

What kind of contract is a portfolio reinsurance?

Portfolio reinsurance is a type of contract in which an insurer has a large block of insurance policies reinsured.