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 the primary purpose of reinsurance for a direct insurer?
Answer: To spread risk, protect against catastrophic losses, and stabilize underwriting results, enabling acceptance of larger risks
Reinsurance enables direct insurers to spread risk, protect against catastrophic or unusually large losses, stabilize annual financial results, increase capacity to write larger risks, and manage their capital position.
What is a 'quota share' reinsurance treaty?
Answer: A treaty where the cedant cedes a fixed percentage of every risk to the reinsurer, sharing both premiums and losses proportionally
In a quota share treaty, the cedant cedes a fixed percentage of every risk to the reinsurer. Premiums are shared in the same proportion as losses — if 30% is ceded, the reinsurer receives 30% of premiums and pays 30% of all losses.
What is a 'surplus lines' reinsurance treaty?
Answer: A proportional treaty where the cedant retains a fixed amount and cedes to the reinsurer any amount above that retention, up to an agreed multiple of the retention
A surplus treaty allows the cedant to retain a fixed amount (one 'line') on each risk and cede the surplus above that retention to the reinsurer, up to an agreed multiple. Larger risks cede more; smaller risks may retain fully.
What is 'stop loss' reinsurance?
Answer: A reinsurance contract that pays when the cedant's total losses for a defined period exceed a stated percentage of earned premium
Stop loss reinsurance protects the cedant's overall loss ratio for a defined period. The reinsurer pays when total losses exceed a specified percentage of earned premium, protecting the cedant from catastrophic aggregate losses across the portfolio.
What is 'catastrophe excess of loss' reinsurance?
Answer: Reinsurance that pays when an accumulation of losses from a single catastrophic event exceeds the cedant's retention
Catastrophe excess of loss (Cat XL) reinsurance responds when a single catastrophic event causes an accumulation of losses across the cedant's portfolio that exceeds the agreed retention, providing protection against event-driven accumulation losses.
What is 'ceding commission' in proportional reinsurance?
Answer: A commission paid by the reinsurer to the cedant, reflecting the cedant's expenses in acquiring and administering the business ceded
Ceding commission is paid by the reinsurer back to the cedant to reimburse the cedant's acquisition costs (agent commissions, expenses) for the business being ceded. It reflects that the cedant does the distribution work.