BCP Reinsurance Concepts and Practices 3

Question 1

Why might an insurer choose to purchase reinsurance even if it has sufficient capital to cover potential losses?

Accepted Answer

To stabilise underwriting results, increase capacity, and protect against catastrophic or unexpected losses

Answer

Because MAS requires all Singapore insurers to maintain a minimum level of reinsurance at all times

Answer

Because reinsurance premiums are tax-deductible under Singapore law, providing a financial incentive

Answer

To reduce the number of policies they issue and limit their overall market share

Question 2

What is meant by the term 'aggregate limit' in a reinsurance contract?

Accepted Answer

The maximum total amount the reinsurer will pay under the contract over a defined period

Answer

The total number of risks the cedant may cede under a treaty in one year

Answer

The minimum retention the cedant must maintain on each individual risk

Answer

The combined premium paid by all cedants to the same reinsurer

Question 3

In the Singapore reinsurance market, what is a 'fronting arrangement'?

Accepted Answer

When a licensed Singapore insurer issues a policy on behalf of an unlicensed foreign insurer, ceding most or all of the risk to that foreign insurer

Answer

When a reinsurer markets its products directly to Singapore policyholders without a primary insurer

Answer

When MAS appoints a local insurer to manage claims on behalf of an insolvent reinsurer

Answer

When two insurers jointly underwrite a risk and share premiums equally between them

Question 4

What is the significance of MAS Notice 120 in relation to reinsurance in Singapore?

Accepted Answer

It prescribes requirements for insurers regarding the management of reinsurance arrangements, including counterparty risk assessment

Answer

It sets the minimum capital requirements for reinsurance companies registered in Singapore

Answer

It bans Singapore insurers from placing reinsurance with foreign reinsurers not rated by MAS

Answer

It requires all reinsurance treaties to be registered with MAS before taking effect

Question 5

What is 'per risk' excess of loss reinsurance, as opposed to 'per occurrence' excess of loss?

Accepted Answer

'Per risk' applies the retention and limit to each individual insured risk, while 'per occurrence' applies to all losses from a single event

Answer

'Per risk' covers the cedant's aggregate annual losses, while 'per occurrence' covers a single event's losses

Answer

'Per risk' is used only for life insurance, while 'per occurrence' is used for general insurance

Answer

'Per risk' requires the cedant to report each claim individually, while 'per occurrence' allows batch reporting

Question 6

How does reinsurance contribute to market capacity in Singapore's insurance sector?

Accepted Answer

By enabling primary insurers to accept larger or more numerous risks than their own capital would otherwise allow

Answer

By reducing the number of insurers allowed to operate in Singapore, concentrating capacity among fewer firms

Answer

By requiring foreign insurers to purchase reinsurance from Singapore-based reinsurers exclusively

Answer

By allowing policyholders to increase their coverage limits without paying additional premiums

Question 7

What is a 'claims-made' reinsurance treaty trigger, and how does it differ from an 'occurrence' trigger?

Accepted Answer

'Claims-made' covers losses where the claim is first made during the treaty period, while 'occurrence' covers losses where the insured event occurred during the treaty period

Answer

'Claims-made' covers losses where the insured event occurred during the treaty period, while 'occurrence' covers losses reported during the treaty period

Answer

'Claims-made' applies only to proportional treaties, while 'occurrence' applies only to non-proportional treaties

Answer

'Claims-made' requires the cedant to pay claims before the reinsurer contributes, while 'occurrence' allows simultaneous payment