AIAF 114 Assignment 7 – Reinsurance Exam Questions and Answers| New Update with 100%
Correct Answers
This reinsurance function allows insurers to assume more significant risks than would otherwise
be permitted Increase large-line capacity
This reinsurance function allows insurers to accept liability for loss exposures it would have
otherwise been unwilling or unable to retain Increase large-line capacity
Insurers cannot typically have more than 10% of their surplus in any one exposure, what
reinsurance function helps with this? Increasing large-line capacity
This reinsurance function allows an insurer to safely retain losses with impairing earnings or
surplus Increasing large-line capacity
Reinsurance can be used to stabilize the loss experience of a particular _____, ______, or entire
_____ __ ____ line (ex. commercial auto)
class (ex. truckers)
entire book of business
Reinsurance can be used to limit liability for
- a ______ loss exposure
- ______ loss exposures affected by a ______ _____
- loss exposures that _______ claims over time - a single loss exposure
- several loss exposures
- loss exposures that aggregate claims over time
This primary function of reinsurance is most useful to rapidly growing insurers Providing
surplus relief
, Reinsurance provides the replenishment of _______ ______ provided by the ______ _______
paid to the primary by the reinsurer Surplus relief from ceding commission
State regulators consider a ratio of written premium to surplus of ___% to be out of bounds
300%
Other than reinsurance, what 2 options do insurers have to withdraw from an unprofitable
class, geographic area or type of insurance? 1. stop writing new policies and continue in-
force policies until expiration (run-off)
2. Cancel all policies if regulars permit, and refund unearned premium
Both of these options are unwieldy, expensive and could create ill will among insureds,
producers and regulators
An inexperienced primary insurer may benefit the most from this reinsurance function
Providing underwriting guidance
This type of reinsurance uses one agreement for an entire class or portfolio of loss exposures,
also referred to as ______ reinsurance Treaty; obligatory
This type of reinsurance is most common, used to reinsure many loss exposures over a period
of time Treaty
TRUE/FALSE: Under treaty reinsurance, the primary must cede all eligible loss exposures to the
reinsurer TRUE, to keep underwriters from having to use discretion, and protecting the
reinsurer from adverse selection
What type of reinsurance uses separate agreements for each loss exposure; referred to as
______ Facultative; non-obligitory
Correct Answers
This reinsurance function allows insurers to assume more significant risks than would otherwise
be permitted Increase large-line capacity
This reinsurance function allows insurers to accept liability for loss exposures it would have
otherwise been unwilling or unable to retain Increase large-line capacity
Insurers cannot typically have more than 10% of their surplus in any one exposure, what
reinsurance function helps with this? Increasing large-line capacity
This reinsurance function allows an insurer to safely retain losses with impairing earnings or
surplus Increasing large-line capacity
Reinsurance can be used to stabilize the loss experience of a particular _____, ______, or entire
_____ __ ____ line (ex. commercial auto)
class (ex. truckers)
entire book of business
Reinsurance can be used to limit liability for
- a ______ loss exposure
- ______ loss exposures affected by a ______ _____
- loss exposures that _______ claims over time - a single loss exposure
- several loss exposures
- loss exposures that aggregate claims over time
This primary function of reinsurance is most useful to rapidly growing insurers Providing
surplus relief
, Reinsurance provides the replenishment of _______ ______ provided by the ______ _______
paid to the primary by the reinsurer Surplus relief from ceding commission
State regulators consider a ratio of written premium to surplus of ___% to be out of bounds
300%
Other than reinsurance, what 2 options do insurers have to withdraw from an unprofitable
class, geographic area or type of insurance? 1. stop writing new policies and continue in-
force policies until expiration (run-off)
2. Cancel all policies if regulars permit, and refund unearned premium
Both of these options are unwieldy, expensive and could create ill will among insureds,
producers and regulators
An inexperienced primary insurer may benefit the most from this reinsurance function
Providing underwriting guidance
This type of reinsurance uses one agreement for an entire class or portfolio of loss exposures,
also referred to as ______ reinsurance Treaty; obligatory
This type of reinsurance is most common, used to reinsure many loss exposures over a period
of time Treaty
TRUE/FALSE: Under treaty reinsurance, the primary must cede all eligible loss exposures to the
reinsurer TRUE, to keep underwriters from having to use discretion, and protecting the
reinsurer from adverse selection
What type of reinsurance uses separate agreements for each loss exposure; referred to as
______ Facultative; non-obligitory
