©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
Professional Liability Reinsurance: RPLU
Exam Questions And Answers 100% Pass.
What was the total insured lossses for Hurricane Katrina? - answer✔Hurricaine Katrina reached
approximately $60 Billion, that is $41.1 billion of insured losses, $16.1 billion in flood losses under the
national Flood Insurance Program, and up to $3 billion for offshore energy facility claims.
The total
estimated settlements for securities class action claims from 2000 to 2010 is - answer✔more than $28.3
billion
Some well-known lawsuits, which involved corporate malfeasance and alleged improper accounting
practices, include - answer✔Worldcom, Enron, and Cedant. Each of these cases resulted in tremendous
costs for litigation, generating settlements of $6.2 billion, $7.2 billion, and $3.7 billion respectively
With these significant financial losses, how do you think insurance companies manage to stay in
business? - answer✔One way insurance companies survive catastrophic events such as hurricanes,
earthquakes, terrorism, and securities class-action lawsuits is through reinsurance.
Utmost Good Faith - answer✔•Implies that a reinsurance relationship involves a high degree of trust
between the parties in all of their business transactions.
•Requires a level of trust necessary between the cedant and reinsurer that maintains a sustainable
business relationship.
Follow the Fortunes - answer✔•Means that there must be a reasonable basis on which the insurer
based its decision and concluded that coverage applies under its policy.
•Is designed to prevent disputes and protracted litigation in which reinsurers disagree with claims the
cedant paid.
Capacity - answer✔•Is the insurer's or reinsurer's financial ability to assume the maximum amount of
coverage they are allowed to assume within a given period.
•Permits the cedant and reinsurer to assume exposures only if the exposures are determined to be
within each one's capacity.
, ©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
Reciprocity - answer✔•Is a reciprocal reinsurance arrangement in which a minimum of two insurance
companies agree to reinsure a portion of each company's insurance obligations.
Syndicate - answer✔•Is a facility set up to transact reinsurance coverage among several reinsurers.
•Is composed of a dosed group of financial backers called members.
•Allows each individual member to liability independently and underwrites on its own behalf.
•Is open for a limited time to write business and to handle claims.
Define reinsurance and describe its role in the insurance industry. - answer✔Reinsurance is called
insurance for insurance companies or a form of financial risk transfer. It is a mechanism insurance
companies may use to protect their businesses from potential catastrophic losses.
This risk management tool works by shifting all, or a portion, of the loss exposures the insurer assumes
to a reinsurer. Reinsurance helps insurance companies increase the availability and security of insurance
policies.
Explain the relationship between the Insured and insurer. - answer✔The insured (policyholder)
purchases insurance coverage from an insurer (cedant/reinsured) by paying a premium. The insurer
assumes the exposure to possible future losses covered by the policy that the insured purchases.
Explain the relationship between the Cedant/reinsured and reinsurer - answer✔The cedant/reinsured is
the insurance company that transfers exposures to another insurance company, called the reinsurer.
Both insurer and reinsurer are bound by a reinsurance agreement to perform their agreed-upon
obligations. The cedant/reinsured must pay premiums to the reinsurer and fulfill other contractual
obligations (such as claims reporting provisions), and the reinsurer must pay its share of the losses the
cedant/reinsured incurs.
Explain the relationship between the Reinsurer and retrocessionaire - answer✔The reinsurer may also
transfer/shift all, or a portion, of the exposures it assumes to another reinsurer, called a
retrocessionaire. This transaction is called retrocession.
Explain how the following principles are related to reinsurance: Utmost Good Faith - answer✔The duty
of utmost good faith requires a high level of trust in all dealings between the cedant/reinsured and
reinsurer. The cedant/reinsured is expected to disclose all material information about the exposures
ceded to the reinsurer. The reinsurer is then required to fulfill its financial obligations to the
cedant/reinsured when those obligations come due. This principle is implied, if not explicitly stated, in
every reinsurance contract.
Explain how the following principles are related to reinsurance: Follow the Fortunes - answer✔When
specified in a reinsurance agreement, follow the fortunes literally means that a reinsurer must follow
the fortune or fate of the cedant/reinsured. Therefore, the reinsurer is bound by the claims decisions
the cedant/reinsured makes. This principle requires the reinsurer to pay the cedant/reinsured, assuming
that the cedant/reinsured has made all claims decisions in good faith. The reinsurer cannot dispute the
, ©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
claims decisions of a cedant/reinsured, except when evidence of bad faith on the part of the
cedant/reinsured exists or when the claims paid are clearly outside the policy's scope. This doctrine is
implied in all reinsurance contracts.
Explain how the following principles are related to reinsurance: Capacity - answer✔Capacity is the
maximum amount of liability that an insurance company is allowed to assume, either on a specific policy
or in the aggregate, as restricted by insurance regulators in order to maintain the insurer's financial
stability.
Explain how the following principles are related to reinsurance: Reciprocity - answer✔Reciprocity is the
exchange of reinsurance between two or more companies. It may be defined as a reciprocal reinsurance
arrangement in which a minimum of two insurance companies agree to reinsure a portion of each
other's insurance obligations. In short, it is an agreement between two or more insurance companies to
reinsure each other.
Explain how the following principles are related to reinsurance: Syndicate - answer✔A syndicate is a
group of financial backers that provides reinsurance to its members. These members may engage in the
process of syndication, in which more than one policy that jointly covers an insurance exposure is
issued.
Distinguish reinsurance from: Coinsurance - answer✔Coinsurance exists when the risks for certain
insurance coverage are shared by two or more insurers who are directly and primarily bound to the
insured per the insurance policy's terms and conditions. Reinsurance, on the other hand, is an exclusive
agreement between the cedant/reinsured and the reinsurer that does not create a direct relationship
between the insured and the reinsurer.
Distinguish reinsurance from: Partnership - answer✔Partnership implies that two or more individuals or
entities have similar knowledge, share results on an equivalent basis, and can terminate their
relationship when desired. Reinsurance is not a type of business organization. It is a risk management
tool in which an insurance company cedes all or part of the exposures it assumes to another insurance
company.
Distinguish reinsurance from: Banking - answer✔Both reinsurance and banking provide financial
services. Banks receive deposits and make loans to others in return for interests paid on those loans.
Reinsurance is a transfer of liability. Reinsurers receive premium for the liability assumed.
Distinguish reinsurance from: Syndication - answer✔Syndication is the issuance of more than one policy
jointly covering an insurance exposure. In reinsurance, liabilities assumed are several and not joint. The
failure of one reinsurer does not increase the liabilities of the remaining reinsurers.
Capacity - answer✔Capacity may, therefore, be defined as the insurer's or reinsurer's financial ability
to assume the maximum amount of coverage each is allowed to assume within a given period.
11/8/2024 12:08 PM
Professional Liability Reinsurance: RPLU
Exam Questions And Answers 100% Pass.
What was the total insured lossses for Hurricane Katrina? - answer✔Hurricaine Katrina reached
approximately $60 Billion, that is $41.1 billion of insured losses, $16.1 billion in flood losses under the
national Flood Insurance Program, and up to $3 billion for offshore energy facility claims.
The total
estimated settlements for securities class action claims from 2000 to 2010 is - answer✔more than $28.3
billion
Some well-known lawsuits, which involved corporate malfeasance and alleged improper accounting
practices, include - answer✔Worldcom, Enron, and Cedant. Each of these cases resulted in tremendous
costs for litigation, generating settlements of $6.2 billion, $7.2 billion, and $3.7 billion respectively
With these significant financial losses, how do you think insurance companies manage to stay in
business? - answer✔One way insurance companies survive catastrophic events such as hurricanes,
earthquakes, terrorism, and securities class-action lawsuits is through reinsurance.
Utmost Good Faith - answer✔•Implies that a reinsurance relationship involves a high degree of trust
between the parties in all of their business transactions.
•Requires a level of trust necessary between the cedant and reinsurer that maintains a sustainable
business relationship.
Follow the Fortunes - answer✔•Means that there must be a reasonable basis on which the insurer
based its decision and concluded that coverage applies under its policy.
•Is designed to prevent disputes and protracted litigation in which reinsurers disagree with claims the
cedant paid.
Capacity - answer✔•Is the insurer's or reinsurer's financial ability to assume the maximum amount of
coverage they are allowed to assume within a given period.
•Permits the cedant and reinsurer to assume exposures only if the exposures are determined to be
within each one's capacity.
, ©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
Reciprocity - answer✔•Is a reciprocal reinsurance arrangement in which a minimum of two insurance
companies agree to reinsure a portion of each company's insurance obligations.
Syndicate - answer✔•Is a facility set up to transact reinsurance coverage among several reinsurers.
•Is composed of a dosed group of financial backers called members.
•Allows each individual member to liability independently and underwrites on its own behalf.
•Is open for a limited time to write business and to handle claims.
Define reinsurance and describe its role in the insurance industry. - answer✔Reinsurance is called
insurance for insurance companies or a form of financial risk transfer. It is a mechanism insurance
companies may use to protect their businesses from potential catastrophic losses.
This risk management tool works by shifting all, or a portion, of the loss exposures the insurer assumes
to a reinsurer. Reinsurance helps insurance companies increase the availability and security of insurance
policies.
Explain the relationship between the Insured and insurer. - answer✔The insured (policyholder)
purchases insurance coverage from an insurer (cedant/reinsured) by paying a premium. The insurer
assumes the exposure to possible future losses covered by the policy that the insured purchases.
Explain the relationship between the Cedant/reinsured and reinsurer - answer✔The cedant/reinsured is
the insurance company that transfers exposures to another insurance company, called the reinsurer.
Both insurer and reinsurer are bound by a reinsurance agreement to perform their agreed-upon
obligations. The cedant/reinsured must pay premiums to the reinsurer and fulfill other contractual
obligations (such as claims reporting provisions), and the reinsurer must pay its share of the losses the
cedant/reinsured incurs.
Explain the relationship between the Reinsurer and retrocessionaire - answer✔The reinsurer may also
transfer/shift all, or a portion, of the exposures it assumes to another reinsurer, called a
retrocessionaire. This transaction is called retrocession.
Explain how the following principles are related to reinsurance: Utmost Good Faith - answer✔The duty
of utmost good faith requires a high level of trust in all dealings between the cedant/reinsured and
reinsurer. The cedant/reinsured is expected to disclose all material information about the exposures
ceded to the reinsurer. The reinsurer is then required to fulfill its financial obligations to the
cedant/reinsured when those obligations come due. This principle is implied, if not explicitly stated, in
every reinsurance contract.
Explain how the following principles are related to reinsurance: Follow the Fortunes - answer✔When
specified in a reinsurance agreement, follow the fortunes literally means that a reinsurer must follow
the fortune or fate of the cedant/reinsured. Therefore, the reinsurer is bound by the claims decisions
the cedant/reinsured makes. This principle requires the reinsurer to pay the cedant/reinsured, assuming
that the cedant/reinsured has made all claims decisions in good faith. The reinsurer cannot dispute the
, ©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
claims decisions of a cedant/reinsured, except when evidence of bad faith on the part of the
cedant/reinsured exists or when the claims paid are clearly outside the policy's scope. This doctrine is
implied in all reinsurance contracts.
Explain how the following principles are related to reinsurance: Capacity - answer✔Capacity is the
maximum amount of liability that an insurance company is allowed to assume, either on a specific policy
or in the aggregate, as restricted by insurance regulators in order to maintain the insurer's financial
stability.
Explain how the following principles are related to reinsurance: Reciprocity - answer✔Reciprocity is the
exchange of reinsurance between two or more companies. It may be defined as a reciprocal reinsurance
arrangement in which a minimum of two insurance companies agree to reinsure a portion of each
other's insurance obligations. In short, it is an agreement between two or more insurance companies to
reinsure each other.
Explain how the following principles are related to reinsurance: Syndicate - answer✔A syndicate is a
group of financial backers that provides reinsurance to its members. These members may engage in the
process of syndication, in which more than one policy that jointly covers an insurance exposure is
issued.
Distinguish reinsurance from: Coinsurance - answer✔Coinsurance exists when the risks for certain
insurance coverage are shared by two or more insurers who are directly and primarily bound to the
insured per the insurance policy's terms and conditions. Reinsurance, on the other hand, is an exclusive
agreement between the cedant/reinsured and the reinsurer that does not create a direct relationship
between the insured and the reinsurer.
Distinguish reinsurance from: Partnership - answer✔Partnership implies that two or more individuals or
entities have similar knowledge, share results on an equivalent basis, and can terminate their
relationship when desired. Reinsurance is not a type of business organization. It is a risk management
tool in which an insurance company cedes all or part of the exposures it assumes to another insurance
company.
Distinguish reinsurance from: Banking - answer✔Both reinsurance and banking provide financial
services. Banks receive deposits and make loans to others in return for interests paid on those loans.
Reinsurance is a transfer of liability. Reinsurers receive premium for the liability assumed.
Distinguish reinsurance from: Syndication - answer✔Syndication is the issuance of more than one policy
jointly covering an insurance exposure. In reinsurance, liabilities assumed are several and not joint. The
failure of one reinsurer does not increase the liabilities of the remaining reinsurers.
Capacity - answer✔Capacity may, therefore, be defined as the insurer's or reinsurer's financial ability
to assume the maximum amount of coverage each is allowed to assume within a given period.
