Reinsurance Concepts and Practices Flashcards
7 cards from real BCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Reinsurance Concepts and Practices flashcards as text
What is 'quota share' reinsurance?
Answer: The reinsurer accepts a fixed percentage of every risk in a portfolio, sharing premiums and losses in that proportion
In quota share reinsurance, the cedant cedes a fixed percentage of every risk to the reinsurer, with premiums and losses shared in that same fixed proportion throughout the portfolio.
How does 'surplus reinsurance' differ from 'quota share' reinsurance?
Answer: In surplus reinsurance, the cedant retains a fixed monetary amount and cedes only the surplus above that retention
In surplus reinsurance, the cedant retains a fixed amount (the 'line') on each risk and cedes the surplus above that retention, meaning the cession percentage varies by risk size.
What is 'excess of loss' reinsurance?
Answer: A non-proportional arrangement where the reinsurer pays losses exceeding the cedant's retention up to an agreed limit
Excess of loss (XL) reinsurance is non-proportional; the reinsurer only pays when a loss exceeds the cedant's agreed retention (deductible) and covers losses up to the reinsurer's liability limit.
What is a 'stop loss' reinsurance arrangement?
Answer: A non-proportional arrangement where the reinsurer pays when the cedant's aggregate losses in a period exceed a defined percentage of premiums
Stop loss reinsurance protects the cedant against an adverse overall loss ratio by triggering reinsurer payments when aggregate losses exceed a defined threshold, typically expressed as a percentage of earned premiums.
What is a 'ceding commission' in a proportional reinsurance treaty?
Answer: A commission paid by the reinsurer to the cedant to cover the cedant's acquisition and administration costs
A ceding commission is paid by the reinsurer back to the cedant as a contribution toward the cedant's original acquisition costs (e.g., agent commissions) and administration expenses on the ceded business.
Which type of reinsurance would best protect an insurer from a single catastrophic event affecting many policyholders simultaneously, such as a major flood?
Answer: Catastrophe excess of loss reinsurance
Catastrophe excess of loss reinsurance is specifically designed to protect insurers against accumulated losses from a single catastrophic event (e.g., flood, earthquake) that triggers many claims at once.
What role does a reinsurance broker play in the reinsurance market?
Answer: The reinsurance broker acts as an intermediary, placing reinsurance on behalf of cedants and negotiating terms with reinsurers
A reinsurance broker is an intermediary who acts on behalf of the cedant to identify suitable reinsurers, negotiate treaty terms and pricing, and facilitate the placement of reinsurance coverage.