CU Reinsurance and Portfolio Management Flashcards

What is the primary purpose of reinsurance for a primary insurer?

Answer: To transfer a portion of risk and stabilize loss experience

Reinsurance allows primary insurers to transfer portions of their risk to reinsurers, stabilizing loss ratios and protecting surplus.

In a quota share reinsurance treaty, how is premium shared between the cedent and reinsurer?

Answer: According to a predetermined fixed percentage of each risk

Quota share treaties allocate a fixed percentage of every premium and corresponding loss to the reinsurer.

Which reinsurance arrangement requires the cedent to offer and the reinsurer to accept every risk within defined parameters?

Answer: Obligatory treaty

Under an obligatory treaty, the cedent must cede and the reinsurer must accept all risks that fall within the treaty's scope.

An excess-of-loss reinsurance agreement triggers reimbursement when:

Answer: A single loss exceeds the cedent's retention level

Excess-of-loss (XL) reinsurance responds once an individual loss surpasses the agreed retention, with the reinsurer covering the excess.

What does the term 'cession' mean in a reinsurance context?

Answer: The amount of risk transferred by the cedent to the reinsurer

A cession is the specific portion of risk (and corresponding premium) that the primary insurer transfers to its reinsurer.

Aggregate stop-loss reinsurance protects the cedent against:

Answer: Cumulative losses exceeding a specified percentage of premiums over a period

Aggregate stop-loss coverage activates when the cedent's total losses for a period exceed an agreed threshold, usually expressed as a loss ratio.