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
Why might an insurer choose to purchase reinsurance even if it has sufficient capital to cover potential losses?
Answer: To stabilise underwriting results, increase capacity, and protect against catastrophic or unexpected losses
Beyond capital adequacy, reinsurance provides stabilisation of earnings, enables the cedant to write larger or more complex risks, and protects the cedant's balance sheet against low-frequency, high-severity events.
What is meant by the term 'aggregate limit' in a reinsurance contract?
Answer: The maximum total amount the reinsurer will pay under the contract over a defined period
An aggregate limit caps the reinsurer's total liability under the contract for all covered losses during the treaty period, protecting the reinsurer from unlimited exposure.
In the Singapore reinsurance market, what is a 'fronting arrangement'?
Answer: When a licensed Singapore insurer issues a policy on behalf of an unlicensed foreign insurer, ceding most or all of the risk to that foreign insurer
A fronting arrangement involves a licensed local insurer issuing the policy to satisfy local licensing requirements while ceding most or all of the risk to a foreign insurer or reinsurer that is not licensed locally.
What is the significance of MAS Notice 120 in relation to reinsurance in Singapore?
Answer: It prescribes requirements for insurers regarding the management of reinsurance arrangements, including counterparty risk assessment
MAS Notice 120 sets out requirements for insurers on reinsurance management, including assessment of reinsurer credit quality, concentration limits, and governance of reinsurance programs.
What is 'per risk' excess of loss reinsurance, as opposed to 'per occurrence' excess of loss?
Answer: 'Per risk' applies the retention and limit to each individual insured risk, while 'per occurrence' applies to all losses from a single event
Per risk XL applies the deductible and limit to losses arising from each individual insured risk, whereas per occurrence (or catastrophe) XL applies the deductible and limit to the aggregated losses from a single event affecting multiple risks.
How does reinsurance contribute to market capacity in Singapore's insurance sector?
Answer: By enabling primary insurers to accept larger or more numerous risks than their own capital would otherwise allow
Reinsurance expands market capacity by allowing primary insurers to cede portions of risk, freeing up capital to underwrite additional or larger risks and enabling the market to absorb business that would otherwise exceed any single insurer's capacity.
What is a 'claims-made' reinsurance treaty trigger, and how does it differ from an 'occurrence' trigger?
Answer: 'Claims-made' covers losses where the claim is first made during the treaty period, while 'occurrence' covers losses where the insured event occurred during the treaty period
A claims-made trigger activates reinsurance when the claim is first reported within the treaty period regardless of when the event occurred, whereas an occurrence trigger activates reinsurance based on when the underlying insured event took place.