CU CU Reinsurance and Portfolio Management 1

Question 1

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

Accepted Answer

To transfer a portion of risk and stabilize loss experience

Answer

To replace primary coverage entirely

Answer

To avoid state regulatory requirements

Answer

To increase premium income without liability

Question 2

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

Accepted Answer

According to a predetermined fixed percentage of each risk

Answer

Based on individual loss severity

Answer

Only after the cedent retains a set dollar amount

Answer

Proportional to the reinsurer's surplus

Question 3

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

Accepted Answer

Obligatory treaty

Answer

Facultative obligatory

Answer

Facultative facultative

Answer

Surplus lines

Question 4

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

Accepted Answer

A single loss exceeds the cedent's retention level

Answer

Aggregate premiums exceed the treaty limit

Answer

The cedent's surplus falls below minimum capital

Answer

Annual losses exceed prior-year averages

Question 5

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

Accepted Answer

The amount of risk transferred by the cedent to the reinsurer

Answer

Canceling a reinsurance contract

Answer

A tax classification for reinsurance premiums

Answer

The reinsurer's claim payment

Question 6

Aggregate stop-loss reinsurance protects the cedent against:

Accepted Answer

Cumulative losses exceeding a specified percentage of premiums over a period

Answer

A single catastrophic event exceeding its per-occurrence limit

Answer

Insolvency of the primary insurer

Answer

Regulatory penalties for under-reserving