ACE ACE Reinsurance & Treaty Concepts 1

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

Reinsurance allows a primary insurer to cede a portion of its risk exposure to a reinsurer, stabilizing its loss experience.

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

In proportional (pro-rata) treaties, both premium income and loss payments are divided between the parties according to a predetermined ratio.

Question 3

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

Accepted Answer

Aggregate excess of loss

Answer

Aggregate (stop-loss) excess of loss reinsurance triggers once total losses in a period surpass the cedant's aggregate retention.

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 reinsurance is placed individually for specific risks, while treaties provide automatic coverage for a book of business.

Question 5

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

Accepted Answer

ACORD 810

Answer

ACORD 810 is the standard electronic message used for reinsurance bordereau (cession) reporting between cedants and reinsurers.

(ACE) ACORD Certified Expert Practice Test