Reinsurance Concepts and Practices Flashcards
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What is the primary purpose of reinsurance?
Answer: To allow insurers to transfer portions of risk to other insurers to reduce potential losses
Reinsurance allows a primary insurer (cedant) to transfer part of the risk it has underwritten to another insurer (reinsurer), thereby reducing its potential exposure to large losses.
In reinsurance terminology, what is a 'cedant'?
Answer: The primary insurer that transfers part of its risk to a reinsurer
A cedant (also called the ceding company) is the primary insurer that cedes (transfers) a portion of its underwritten risk to a reinsurer under a reinsurance arrangement.
What distinguishes treaty reinsurance from facultative reinsurance?
Answer: Treaty reinsurance covers a defined portfolio of risks automatically, while facultative covers individual risks negotiated case by case
Under a treaty, the reinsurer automatically accepts all risks within the agreed portfolio, whereas facultative reinsurance involves individual negotiation for each specific risk.
What is 'proportional reinsurance'?
Answer: A reinsurance arrangement where the reinsurer shares premiums and losses in an agreed proportion
In proportional reinsurance, the reinsurer participates in both premiums and losses according to an agreed ratio, sharing risk in the same proportion as the premium allocation.
What is 'retrocession' in the context of reinsurance?
Answer: When a reinsurer transfers part of the risk it has accepted to another reinsurer
Retrocession is the process by which a reinsurer cedes part of the risk it has accepted to another reinsurer (called a retrocessionaire), further spreading the risk in the market.
Which of the following best describes 'retention' in reinsurance?
Answer: The portion of risk that the cedant keeps for its own account rather than ceding
Retention is the amount of risk the primary insurer chooses to keep on its own account; any risk above the retention level is ceded to the reinsurer.
Under Singapore's regulatory framework, which authority supervises reinsurers operating in Singapore?
Answer: Monetary Authority of Singapore (MAS)
The Monetary Authority of Singapore (MAS) is the integrated regulator and supervisor of all insurance and reinsurance entities operating in Singapore under the Insurance Act.