ACE ACE Reinsurance & Treaty Concepts 2 — Questions and Answers
Question 1: Under a surplus share treaty, what determines the amount of risk ceded to the reinsurer?
- The insured's credit score
- The amount by which the policy limit exceeds the cedant's retention line (Correct answer)
- The reinsurer's capacity at the time of binding
- The geographic location of the insured property
Correct answer: The amount by which the policy limit exceeds the cedant's retention line
In a surplus share treaty the ceded amount equals the policy limit minus the cedant's retained 'line,' with the reinsurer covering the surplus portion.
Question 2: What is a 'loss corridor' in an aggregate reinsurance structure?
- A geographic zone excluded from coverage
- A band of aggregate losses retained by the cedant between two reinsurer layers (Correct answer)
- A time-based waiting period before a claim is paid
- A corridor in the policy document listing covered perils
Correct answer: A band of aggregate losses retained by the cedant between two reinsurer layers
A loss corridor is a layer of aggregate losses sandwiched between two reinsurance covers that the cedant must absorb itself.
Question 3: Which term describes the primary insurer's share of risk that it retains and does not cede to a reinsurer?
- Net retained line (Correct answer)
- Gross written premium
- Bordereau
- Retrocession
Correct answer: Net retained line
The net retained line (or net retention) is the portion of each risk the cedant keeps for its own account after ceding the rest.
Question 4: What is retrocession in the context of reinsurance?
- The process of canceling a reinsurance treaty mid-term
- A reinsurer ceding part of its assumed risk to another reinsurer (Correct answer)
- The return of unearned premium to the cedant upon treaty termination
- A regulatory requirement for domestic reinsurers
Correct answer: A reinsurer ceding part of its assumed risk to another reinsurer
Retrocession occurs when a reinsurer (the retrocedant) itself purchases reinsurance to further spread the risk it has accepted.
Question 5: In an excess-of-loss per-risk treaty, what does the 'attachment point' represent?
- The maximum limit the reinsurer will pay
- The loss amount the cedant must retain before the reinsurer's coverage applies (Correct answer)
- The date the treaty becomes effective
- The premium rate charged by the reinsurer
Correct answer: The loss amount the cedant must retain before the reinsurer's coverage applies
The attachment point (or retention) is the dollar threshold the cedant bears on any single risk before excess-of-loss coverage is triggered.
Question 6: Which ACORD standard message set is specifically designed for the exchange of reinsurance accounting and settlement data?
- ACORD AL3
- ACORD REIN (800-series XML messages) (Correct answer)
- ACORD CSIO EDI
- ACORD Life XML
Correct answer: ACORD REIN (800-series XML messages)
The ACORD 800-series XML messages provide standardized formats for reinsurance accounting, claims, and contract data exchange.
ACE ACE Reinsurance & Treaty Concepts 2
Under a surplus share treaty, what determines the amount of risk ceded to the reinsurer?