ACE Reinsurance & Treaty Concepts Flashcards

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

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

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

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

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

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

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

Answer: Aggregate excess of loss

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

What distinguishes a facultative reinsurance arrangement from a treaty arrangement?

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

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

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

Answer: ACORD 810

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

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

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

The ceding commission compensates the primary insurer for the policy acquisition costs and administrative expenses embedded in the ceded premium.