Basics of Reinsurance

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

Prudent insurers

• 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

Reinsurance is:

• 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

• c. Deductible

• 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