CAS Reinsurance Concepts and Applications 3

Question 1

What is the main difference between per-occurrence XOL and per-risk XOL reinsurance?

Accepted Answer

Per-risk applies the retention to each individual insured separately; per-occurrence applies it to the total loss from one event affecting multiple insureds

Answer

Per-occurrence applies the retention to a single insured risk; per-risk applies it to all losses from one event

Answer

Per-occurrence covers property only; per-risk covers casualty only

Answer

Per-risk reinsurance requires facultative negotiation; per-occurrence does not

Question 2

What is a 'sliding scale commission' in proportional reinsurance?

Accepted Answer

A commission that increases as the ceded loss ratio improves (decreases)

Answer

A flat commission that slides down over the treaty term

Answer

A commission based on the reinsurer's investment income

Answer

A variable commission tied to inflation indices

Question 3

In catastrophe reinsurance pricing, what is an 'Annual Exceedance Probability (AEP) curve' used for?

Accepted Answer

Determining the probability that aggregate losses in a year will exceed various dollar amounts

Answer

Measuring individual risk severity distributions

Answer

Setting reinsurance commissions by line of business

Answer

Calculating IBNR reserves for catastrophe claims

Question 4

What is 'retrocession' in the context of reinsurance?

Accepted Answer

A reinsurer purchasing reinsurance from another reinsurer for risks it has accepted

Answer

The ceding company buying back previously ceded risk

Answer

The return of unearned premium when a treaty is cancelled mid-term

Answer

A regulatory requirement for reinsurers to hold additional reserves

Question 5

Under A.M. Best's analysis of a reinsurance program, which factor would most increase concerns about the ceding company's credit risk from reinsurance recoverables?

Accepted Answer

Heavy concentration of recoverables with one low-rated reinsurer

Answer

High diversification of reinsurers by geography

Answer

Using only proportional treaties rather than excess of loss

Answer

Purchasing reinsurance through a licensed broker

Question 6

What is the 'hours clause' in a catastrophe excess of loss reinsurance treaty?

Accepted Answer

A provision that defines the maximum time window within which losses from one event can be aggregated as a single occurrence

Answer

The minimum reporting period for losses to be submitted to the reinsurer

Answer

The deadline for the ceding company to notify the reinsurer of large individual losses

Answer

A clause requiring the reinsurer to respond to claims within a certain number of hours

Question 7

Which statement best describes the concept of 'risk transfer' as it relates to whether a reinsurance contract qualifies for reinsurance accounting treatment under GAAP?

Accepted Answer

The reinsurance contract must expose the reinsurer to a reasonable possibility of significant loss for genuine risk transfer to exist

Answer

The reinsurer must assume at least 50% of the original policy's premium for risk transfer to exist

Answer

Risk transfer is satisfied as long as the contract specifies a loss limit and an attachment point

Answer

GAAP requires risk transfer only for proportional treaties, not for excess of loss structures