CAS Reinsurance Concepts and Applications 2

Question 1

In excess of loss reinsurance, what is the term for the amount the ceding company pays before the reinsurer's coverage begins?

Accepted Answer

Attachment point (retention)

Answer

The attachment point (also called the retention) is the dollar amount of loss the ceding company must absorb before the reinsurer begins paying under an excess of loss structure.

Question 2

Which reinsurance pricing method calculates the reinsurer's expected loss cost based on historical loss experience adjusted for trend and development?

Accepted Answer

Experience rating (burning cost method)

Answer

The burning cost (experience rating) method prices reinsurance by analyzing historical losses that exceeded the retention, trended and developed to current levels, to estimate future reinsurer costs.

Question 3

What does the term 'reinsurance recoverable' represent on a primary insurer's balance sheet?

Accepted Answer

Amounts owed to the primary insurer by reinsurers for ceded losses

Answer

Reinsurance recoverables are amounts the primary insurer expects to collect from its reinsurers for ceded claims that have been paid or are outstanding, appearing as an asset on the balance sheet.

Question 4

In surplus share reinsurance, the amount ceded is based on which factor?

Accepted Answer

The amount by which the policy limit exceeds the ceding company's retention line

Answer

In surplus share reinsurance, the ceded amount is the portion of the policy limit that exceeds the ceding company's net retention line, so larger policies cede a higher proportion to the reinsurer.

Question 5

What is a 'loss corridor' in an aggregate reinsurance structure?

Accepted Answer

A range of aggregate losses where the ceding company retains 100% of losses

Answer

A loss corridor is a band within the reinsurance structure where the ceding company bears all losses itself, often placed between two layers of reinsurance, reducing the reinsurer's exposure and premium cost.

(CAS) Casualty Actuarial Society Practice Test

(CAS) Casualty Actuarial Society Practice Test

CAS Reinsurance Concepts and Applications 2