Reinsurance Flashcards
6 cards from real PGI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Reinsurance flashcards as text
What is 'facultative reinsurance' and when is it used?
Answer: Reinsurance arranged on a case-by-case basis for individual risks, where the reinsurer has the option to accept or decline
Facultative reinsurance is arranged on a case-by-case basis for individual risks. The cedant offers the risk and the reinsurer has the 'faculty' (option) to accept or decline it, unlike treaty arrangements which are automatic.
What is a 'treaty reinsurance' arrangement?
Answer: An agreement where the cedant automatically cedes and the reinsurer automatically accepts a defined portfolio of risks
Treaty reinsurance is an automatic arrangement where the cedant agrees to cede, and the reinsurer agrees to accept, all risks falling within a defined class or portfolio, without individual negotiation for each risk.
What does 'retention' mean in the context of reinsurance?
Answer: The amount of each risk the cedant (primary insurer) keeps for its own account
Retention is the amount or proportion of each risk that the cedant keeps on its own account. Losses up to the retention are borne entirely by the cedant; amounts above are passed to the reinsurer.
What is a 'loss portfolio transfer' (LPT) in reinsurance?
Answer: A reinsurance transaction where the cedant transfers an existing portfolio of losses (reserves) to a reinsurer for a premium, removing uncertainty from its balance sheet
A Loss Portfolio Transfer involves the cedant paying a premium to a reinsurer to assume responsibility for an existing block of loss reserves. It removes future reserve development uncertainty from the cedant's balance sheet.
What is the 'hours clause' in a catastrophe reinsurance policy?
Answer: A provision defining the maximum time window within which losses from a single catastrophic event can be aggregated for treaty purposes
The hours clause defines the time window (e.g., 72 or 168 hours) during which accumulated losses from a single event can be grouped as one occurrence for catastrophe treaty purposes, preventing the cedant from aggregating losses from separate events.
What is 'underwriting year' versus 'accident year' versus 'calendar year' accounting in reinsurance?
Answer: Underwriting year groups losses by policy inception; accident year groups by when the loss occurred; calendar year groups by when losses are recorded — each gives different timing views of performance
These three accounting bases group losses differently: underwriting year by when the policy was written, accident year by when the loss event occurred, and calendar year by when losses are actually recorded in financial statements — giving different perspectives on portfolio performance over time.