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Reinsurance allows an insurance company to:
a. Expand its capacity
b. Stabilise its underwriting results
c. Finance its expanding volume
d. All of the above
The capacity of an insurer is:
a. The size of the insurer
b. How many employees an insurer has
c. The amount of business an insurer can accept
d. The underwriting results of an insurer
a. Will avoid over-exposure on any risk
b. Will focus on profit only
c. Will always only take risks they have experience in
d. Only use facultative reinsurance to reinsure business
A solvency margin is:
a. a tool to use when we are checking if commercial clients are solvent
b. worked out by dividing premium by claims
c. the amount by which assets must exceed liabilities
d. None of the above
a. Only necessary when an insurer is new or inexperienced in a class of business
b. A risk transfer mechanism and spreads the risk
c A mechanism to transfer high risk business to another insurer
d. Organised once a year in negotiations with reinsurers
The reinsurer that sets the terms for the contract is called the:
a. following reinsurer
b. lead reinsurer
c. chief reinsurer
d. stakeholding reinsurer
e. major reinsurer
Treaty Reinsurance is:
a. negotiated between insurers and reinsurers on an annual basis
b. placed individually on particular policies when retention limits are exceeded
c. subject to treaty exclusions
d. a & c
1. Proportional forms of treaty reinsurance include:
a. quota share; surplus
b. excess of loss; quota share
c. surplus; excess of loss
d. surplus; cat XL
The retention of the primary insurer in an excess of loss arrangement is called:
a. First amount payable
b. Insurers capacity
d. First layer
Facultative reinsurance is:
a. Negotiated annually with reinsurers
b. Only requested from reinsurers when dealing with property insurance
c. issued on an individual analysis of the situation and facts of the underlying policy
d. automatically accepted by the reinsurer if the insurance is on a reinsured class of business
A base or deductible amount is set in the reinsurance policy, and any loss exceeding that amount is paid by the reinsurer in non-proportional reinsurance.
A reinsurance contract is a contract of indemnity.
Non-proportional reinsurance is usually expressed as a percentage of the risk a reinsurer is taking from the primary insurer.
Surplus treaty works with a reinsurer taking multiple “lines” of the insurer’s retention.
In Excess of Loss reinsurance, the reinsurer is responsible for the amounts in the deductible and the insurer for the excess of loss.
EML stands for: estimated maximum loss.
The duty of good faith has several facets, including the requirement that both parties to the reinsurance contract deal with each other with openess and honesty.
Reinsurance companies are not by law allowed to purchase their own reinsurance from other reinsurers.
A line is the amount of risk which an insurer keeps for its own account which is the maximum net loss that can be sustained on that risk by the cedant.
A retrocession is a second reinsurance, that is where the reinsurer decides, having accepted a cession, to arrange a further reinsurance on its part of the risk
How is surplus reinsurance similar to quota share reinsurance?
The reinsurer and reinsured's share of the claim is proportionate.
The reinsured retains a more homogeneous portfolio.
The reinsurer's share of the claim is a multiple of the reinsured's retention.
The share of the reinsured and reinsurer differs from cession to cession.
An individual loss on an insured risk triggers the reinsurance coverage if it exceeds the deductible, is described as an excess of loss per risk treaty.
A quota share treaty refers to perils that affect many policyholders e.g hurricanes, earthquakes
Treaty reinsurance is the reinsurance of entire insurance portfolios.
The retention of a company is the percentage amount that an insurer expects to keep of the premium from a risk
What are the disadvantages of facultative reinsurance?
High administration costs
No immediate cover
Can cover hazardous classes such as petrochemicals
A retrocession is when a reinsurer purchases protection from another reinsurer.
On facultative excess of loss for $2 000 000 XS $1 000 000, how much does the insurance company retain?
$2 000 000
$1 000 000
$3 000 000
ABC Insurance Co has a surplus treaty of nine lines of $1 000 000 and a retention of $1 000 000. They accept a risk with a sum insured of $15 000 000. How much facultative reinsurance should they buy?
$6 000 000
$5 000 000
$4 000 000
$14 000 000
An insurance company which places business, with a reinsurance company is known as a........