PGI Reinsurance 1

Question 1

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

Accepted Answer

To spread risk, protect against catastrophic losses, and stabilize underwriting results, enabling acceptance of larger risks

Answer

To generate additional profit through premium income

Answer

To replace the need for direct insurance

Answer

To comply with MAS capital requirements only

Question 2

What is a 'quota share' reinsurance treaty?

Accepted Answer

A treaty where the cedant cedes a fixed percentage of every risk to the reinsurer, sharing both premiums and losses proportionally

Answer

A treaty where the reinsurer takes all losses above a fixed amount

Answer

A treaty covering only the largest risks in the portfolio

Answer

A treaty activated only after a catastrophe

Question 3

What is a 'surplus lines' reinsurance treaty?

Accepted Answer

A proportional treaty where the cedant retains a fixed amount and cedes to the reinsurer any amount above that retention, up to an agreed multiple of the retention

Answer

The same as a quota share treaty

Answer

A non-proportional treaty protecting against large single losses

Answer

A treaty covering exposures in multiple countries

Question 4

What is 'stop loss' reinsurance?

Accepted Answer

A reinsurance contract that pays when the cedant's total losses for a defined period exceed a stated percentage of earned premium

Answer

Reinsurance that stops losses from exceeding policy limits

Answer

Reinsurance that stops at the cedant's retention level

Answer

A per-risk excess of loss arrangement

Question 5

What is 'catastrophe excess of loss' reinsurance?

Accepted Answer

Reinsurance that pays when an accumulation of losses from a single catastrophic event exceeds the cedant's retention

Answer

Reinsurance for any single large loss

Answer

Reinsurance for professional indemnity catastrophes only

Answer

The same as per-risk excess of loss

Question 6

What is 'ceding commission' in proportional reinsurance?

Accepted Answer

A commission paid by the reinsurer to the cedant, reflecting the cedant's expenses in acquiring and administering the business ceded

Answer

A fee charged by MAS for approving reinsurance treaties

Answer

A penalty charged for exceeding cession limits

Answer

A fee paid by the cedant to access the reinsurance market