©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
RPLU-05 Reinsurance Exam Questions And
Answers 100% Pass.
Define reinsurance and describe its role in the industry - answer✔Reinsurance is known as "insurance
for insurance companies." It is a mechanism for insurance companies to protect their business from
potential catastrophic losses. This risk management tool works by shifting all, or a portion of the loss
exposures assumed by the Insurer to a Reinsurer. Reinsurance assists in increasing the availability and
security of insurance policies
Explain the relationship between: Insured and Insurer - answer✔the insured purchases insurance from
an Insurer (cedant) through payment of premium.
Explain the relationship between: Cedant and Reinsurer - answer✔Cedant is the insurance company that
transfers exposures to another insurance company, called the Reinsurer. Both the Insurer and Reinsurer
are bound by a reinsurance agreement to perform their agreed-upon obligations. The cedant must pay
premiums to the Reinsurer, and the Reinsurer must pay its share pf the losses incurred by the Cedant
Explain the relationship between: Reinsurer and Retrocessianaire - 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 on as Retrocession
What are the Major Functions of Reinsurance? - answer✔1. Increase Capacity
2. Stabilizes underwriting results over time
3.Protects from catastrophic risks or exposures
4. Provides underwriting, claims, and actuarial experience
5. Enables insurers to withdraw from geographic locations or classes of business
Large Line Capacity - answer✔insurer can write higher limits of liability on a single exposure than its
policy limit
Premium Volume Cpacity - answer✔total amount of business an insurer can accept based on
policyholders surplus
Surplus relief - answer✔refers to increase in an insurer's policyholders surplus through an offset of
reinsurer's reimbursement of insurer's expenses with insurer's prepaid expenses
, ©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
Clash Event - answer✔single catastrophic event occurrence that may affect multiple policies covered by
an insurer
Direct Market Distribution Channel - answer✔reinsurers own salaried employees are responsible for
marketing and underwriting the products
Benefits: specific needs may be addressed and resolved more efficiently because companies
communicate directly with reinsurers; better opportunities for insurers to increase their underwriting
expertise
Drawback: smaller # of products offered, limited options
Broker Market Distribution Channel - answer✔reinsurance intermediaries assist in negotiating on behalf
of the primary company; compensated by a commission
Benefits: cost effective and efficient by limiting internal resources and intellectual capital; broader # of
reinsurers to compete on terms and pricing for business; intermediary serves as a buffer
Drawbacks: Middleman may cause delay in resolving issues, more difficult to acquire expertise because
all transactions go through reinsurance intermediaries
Types of Reinsurers - answer✔-Admitted
-Non-Admitted
-Off Shore
2 types of Off Shore Reinsurers - answer✔-domiciled outside the US and not governed by US regulations
Bermuda Market - estimated 30% of reinsurance markets (3rd largest market in the world).
-Benefits: 1. No income tax 2. Fewer restricitions on how Bermuda companies can invest their assets and
deploy capital 3. Close proximity to the US
London Market: famous for assuming many unusual and complex risks (lloyds)
Reinsurance Agreement: Treaty vs Facultative - answer✔Treaty: used to cover a group, class or portfolio
of insurance exposures; obligatory; each exposure is not analyzed
Facultative: agreement is negotiated for each prospective policy/individual risk exposures; usual
complex or unusual exposures; ca be more expensive than treat because each exposure individually
underwritten
Reinsurance Agreement: Treaty (+/- for reinsured) - answer✔ADVANTAGE (to reinsured): more
confident in competence of reinsurer because of long term working relationship; less costly; one
agreement for group of exposures, opportunity to strengthen UW expertise in certain classes of
business
11/8/2024 12:08 PM
RPLU-05 Reinsurance Exam Questions And
Answers 100% Pass.
Define reinsurance and describe its role in the industry - answer✔Reinsurance is known as "insurance
for insurance companies." It is a mechanism for insurance companies to protect their business from
potential catastrophic losses. This risk management tool works by shifting all, or a portion of the loss
exposures assumed by the Insurer to a Reinsurer. Reinsurance assists in increasing the availability and
security of insurance policies
Explain the relationship between: Insured and Insurer - answer✔the insured purchases insurance from
an Insurer (cedant) through payment of premium.
Explain the relationship between: Cedant and Reinsurer - answer✔Cedant is the insurance company that
transfers exposures to another insurance company, called the Reinsurer. Both the Insurer and Reinsurer
are bound by a reinsurance agreement to perform their agreed-upon obligations. The cedant must pay
premiums to the Reinsurer, and the Reinsurer must pay its share pf the losses incurred by the Cedant
Explain the relationship between: Reinsurer and Retrocessianaire - 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 on as Retrocession
What are the Major Functions of Reinsurance? - answer✔1. Increase Capacity
2. Stabilizes underwriting results over time
3.Protects from catastrophic risks or exposures
4. Provides underwriting, claims, and actuarial experience
5. Enables insurers to withdraw from geographic locations or classes of business
Large Line Capacity - answer✔insurer can write higher limits of liability on a single exposure than its
policy limit
Premium Volume Cpacity - answer✔total amount of business an insurer can accept based on
policyholders surplus
Surplus relief - answer✔refers to increase in an insurer's policyholders surplus through an offset of
reinsurer's reimbursement of insurer's expenses with insurer's prepaid expenses
, ©THEBRIGHT EXAM SOLUTIONS
11/8/2024 12:08 PM
Clash Event - answer✔single catastrophic event occurrence that may affect multiple policies covered by
an insurer
Direct Market Distribution Channel - answer✔reinsurers own salaried employees are responsible for
marketing and underwriting the products
Benefits: specific needs may be addressed and resolved more efficiently because companies
communicate directly with reinsurers; better opportunities for insurers to increase their underwriting
expertise
Drawback: smaller # of products offered, limited options
Broker Market Distribution Channel - answer✔reinsurance intermediaries assist in negotiating on behalf
of the primary company; compensated by a commission
Benefits: cost effective and efficient by limiting internal resources and intellectual capital; broader # of
reinsurers to compete on terms and pricing for business; intermediary serves as a buffer
Drawbacks: Middleman may cause delay in resolving issues, more difficult to acquire expertise because
all transactions go through reinsurance intermediaries
Types of Reinsurers - answer✔-Admitted
-Non-Admitted
-Off Shore
2 types of Off Shore Reinsurers - answer✔-domiciled outside the US and not governed by US regulations
Bermuda Market - estimated 30% of reinsurance markets (3rd largest market in the world).
-Benefits: 1. No income tax 2. Fewer restricitions on how Bermuda companies can invest their assets and
deploy capital 3. Close proximity to the US
London Market: famous for assuming many unusual and complex risks (lloyds)
Reinsurance Agreement: Treaty vs Facultative - answer✔Treaty: used to cover a group, class or portfolio
of insurance exposures; obligatory; each exposure is not analyzed
Facultative: agreement is negotiated for each prospective policy/individual risk exposures; usual
complex or unusual exposures; ca be more expensive than treat because each exposure individually
underwritten
Reinsurance Agreement: Treaty (+/- for reinsured) - answer✔ADVANTAGE (to reinsured): more
confident in competence of reinsurer because of long term working relationship; less costly; one
agreement for group of exposures, opportunity to strengthen UW expertise in certain classes of
business
