BCP Reinsurance Concepts and Practices 2

Question 1

What is 'quota share' reinsurance?

Accepted Answer

The reinsurer accepts a fixed percentage of every risk in a portfolio, sharing premiums and losses in that proportion

Answer

The reinsurer pays losses only above a specified per-occurrence deductible

Answer

The cedant and reinsurer split losses equally only after aggregate losses exceed a threshold

Answer

The reinsurer provides coverage only for catastrophic events defined in the treaty

Question 2

How does 'surplus reinsurance' differ from 'quota share' reinsurance?

Accepted Answer

In surplus reinsurance, the cedant retains a fixed monetary amount and cedes only the surplus above that retention

Answer

Surplus reinsurance applies only to life insurance, while quota share applies to general insurance

Answer

Surplus reinsurance requires government approval, while quota share does not

Answer

Surplus reinsurance covers aggregate annual losses, while quota share covers individual occurrences

Question 3

What is 'excess of loss' reinsurance?

Accepted Answer

A non-proportional arrangement where the reinsurer pays losses exceeding the cedant's retention up to an agreed limit

Answer

A proportional arrangement where losses are shared equally between cedant and reinsurer

Answer

A type of quota share treaty covering only losses that exceed market average

Answer

An arrangement where the reinsurer pays the cedant a lump sum regardless of actual losses

Question 4

What is a 'stop loss' reinsurance arrangement?

Accepted Answer

A non-proportional arrangement where the reinsurer pays when the cedant's aggregate losses in a period exceed a defined percentage of premiums

Answer

A treaty that stops automatically when the cedant's total premium reaches a defined cap

Answer

A proportional treaty that limits the reinsurer's share to a maximum number of claims

Answer

An arrangement used exclusively for marine cargo reinsurance in Singapore

Question 5

What is a 'ceding commission' in a proportional reinsurance treaty?

Accepted Answer

A commission paid by the reinsurer to the cedant to cover the cedant's acquisition and administration costs

Answer

A fee paid by the cedant to MAS for approving the reinsurance arrangement

Answer

A penalty charged to the cedant if it cedes more risk than agreed in the treaty

Answer

A commission earned by the broker for placing the reinsurance with multiple reinsurers

Question 6

Which type of reinsurance would best protect an insurer from a single catastrophic event affecting many policyholders simultaneously, such as a major flood?

Accepted Answer

Catastrophe excess of loss reinsurance

Answer

Quota share treaty

Answer

Surplus reinsurance treaty

Answer

Stop loss reinsurance

Question 7

What role does a reinsurance broker play in the reinsurance market?

Accepted Answer

The reinsurance broker acts as an intermediary, placing reinsurance on behalf of cedants and negotiating terms with reinsurers

Answer

The reinsurance broker assumes part of the risk alongside the reinsurer

Answer

The reinsurance broker regulates the terms and pricing of all reinsurance treaties in Singapore

Answer

The reinsurance broker provides capital to reinsurers in exchange for a share of premiums