ACE ACE Reinsurance & Treaty Concepts

Question 1

What is the primary purpose of reinsurance in the US insurance market?

Accepted Answer

To transfer a portion of risk from the primary insurer to another insurer

Answer

To replace primary insurance policies

Answer

To regulate premium rates charged to policyholders

Answer

To eliminate the need for underwriting

Question 2

In a proportional reinsurance treaty, how are premiums and losses shared?

Accepted Answer

Premiums and losses are shared in an agreed proportion between cedant and reinsurer

Answer

The reinsurer pays all losses above a fixed threshold

Answer

The cedant retains all premiums and the reinsurer covers all losses

Answer

Losses are shared equally regardless of premium allocation

Question 3

Which reinsurance structure provides coverage only when aggregate losses exceed a specified retention?

Accepted Answer

Aggregate excess of loss

Answer

Quota share treaty

Answer

Surplus share treaty

Answer

Facultative obligatory

Question 4

What distinguishes a facultative reinsurance arrangement from a treaty arrangement?

Accepted Answer

Facultative is negotiated risk-by-risk; treaties cover a defined class of business automatically

Answer

Facultative covers an entire portfolio automatically; treaties cover individual risks

Answer

Facultative requires regulatory approval; treaties do not

Answer

Facultative is only used for life insurance; treaties apply to property lines

Question 5

Which ACORD form is commonly used to submit reinsurance bordereau data?

Accepted Answer

ACORD 810

Answer

ACORD 25

Answer

ACORD 75

Answer

ACORD 107

Question 6

What is the 'ceding commission' in a reinsurance agreement?

Accepted Answer

An amount paid by the reinsurer to the cedant to offset acquisition and overhead costs

Answer

A penalty paid by the reinsurer for late loss payments

Answer

A fee charged by a reinsurance broker for placing business

Answer

A deposit held by the cedant against future losses