TRIP Portfolio Management & Strategy 2 — Questions and Answers
Question 1: A transportation underwriter notices that 40% of their cargo book is concentrated in a single Gulf Coast port. Which portfolio management action best addresses this exposure?
- Purchase a quota share reinsurance treaty covering only Gulf Coast shipments
- Implement geographic spread guidelines to cap port concentration below a defined threshold (Correct answer)
- Increase premium rates for Gulf Coast cargo by 40% to reflect the concentration
- Exclude catastrophic perils from all Gulf Coast policies
Correct answer: Implement geographic spread guidelines to cap port concentration below a defined threshold
Implementing concentration guidelines is the strategic portfolio-level solution that reduces systemic exposure before individual risk selection.
Question 2: Under a quota share reinsurance treaty, if the ceding percentage is 50% and a covered loss is $600,000, how much does the cedant retain?
- $600,000
- $300,000 (Correct answer)
- $100,000
- $0
Correct answer: $300,000
Under a 50% quota share, the cedant retains 50% of every loss, so 50% × $600,000 = $300,000.
Question 3: Which reinsurance structure is most appropriate for a transportation insurer seeking to protect against a single catastrophic loss event while retaining a large volume of small-to-medium losses?
- Quota share treaty
- Aggregate stop-loss
- Per-occurrence excess of loss (Correct answer)
- Facultative obligatory
Correct answer: Per-occurrence excess of loss
Per-occurrence excess of loss responds above a retention point for a single event, protecting against catastrophic individual losses while leaving attritional losses with the cedant.
Question 4: Risk correlation in a transportation insurance portfolio is MOST concerning when:
- The portfolio contains both ocean cargo and inland marine risks
- Multiple policies share the same vessel, driver, or corridor exposure (Correct answer)
- Premium rates vary by commodity type across the portfolio
- The portfolio includes accounts from different industry sectors
Correct answer: Multiple policies share the same vessel, driver, or corridor exposure
Risks sharing the same physical assets or routes are highly correlated and can produce simultaneous losses, amplifying aggregate exposure.
Question 5: A transportation insurer uses catastrophe modeling for its port-to-port cargo book. The primary purpose of this modeling in portfolio management is to:
- Set individual policy deductibles for each shipment
- Estimate maximum probable loss to inform reinsurance purchasing decisions (Correct answer)
- Replace actuarial loss development triangles for IBNR calculation
- Determine the average premium rate across all cargo classes
Correct answer: Estimate maximum probable loss to inform reinsurance purchasing decisions
Catastrophe modeling estimates aggregate probable maximum losses, which directly informs how much reinsurance protection the portfolio needs.
Question 6: When managing a trucking liability portfolio, an underwriter decides to reduce exposure to long-haul refrigerated carriers. This is an example of:
- Treaty reinsurance cession
- Portfolio steering through risk appetite adjustment (Correct answer)
- Retroactive policy endorsement
- Loss development factor recalculation
Correct answer: Portfolio steering through risk appetite adjustment
Portfolio steering involves deliberately shifting the mix of business written to align with the insurer's risk appetite and profitability targets.
Question 7: Which statement BEST describes the advantage of facultative reinsurance over treaty reinsurance for a transportation insurer?
- Facultative covers all risks automatically without underwriting each submission
- Facultative allows the reinsurer to individually underwrite and price unique or oversized risks (Correct answer)
- Facultative provides broader coverage at lower cost than treaty reinsurance
- Facultative eliminates the need for the cedant to maintain risk retentions
Correct answer: Facultative allows the reinsurer to individually underwrite and price unique or oversized risks
Facultative reinsurance is negotiated case-by-case, making it ideal for atypical, high-value, or complex transportation risks that don't fit treaty parameters.
TRIP Portfolio Management & Strategy 2
A transportation underwriter notices that 40% of their cargo book is concentrated in a single Gulf Coast port.
Which portfolio management action best addresses this exposure?