CPCU 520 Chapter 8 Exam Questions and Answers Already Passed Latest Update 2025-2026
Reinsurance - Answers The transfer of insurance risk from one insurer to another through a
contractual agreement under which one insurer (the reinsurer) agrees, in return for reinsurance
premium, to indemnify another insurer (the primary insurer) for some or all of the financial
consequences of certain loss exposures covered by the primary insurance policies
Primary insurer - Answers In reinsurance, the insurer that transfers or cedes all or part of the
insurance risk it has assumed to another insurer in a contractual arrangement
Reinsurer - Answers The insurer that assumes some or all of the potential costs of insured loss
exposures of the primary insurer in a reinsurance contractual agreement
Reinsurance agreement - Answers Contract between the primary insurer and reinsurer that
stipulates the form or reinsurance and the type of accounts to be reinsured
Insurance risk - Answers Uncertainty about the adequacy of insurance premiums to pay losses
Retention - Answers The amount retained by the primary insurer in the reinsurance
transaction...usually required by the reinsurer
Risk, as it relates to reinsurance - Answers refers to the subject of the reinsurance agreement
Reinsurance premium - Answers The consideration paid by the primary insurer to the reinsurer
for assuming some or all of the primary insurer's insurance risk
Ceding commission - Answers An amount paid by the reinsurer to the primary insurer to cover
part or all of the primary insurer's policy acquisition expenses
Retrocession - Answers A reinsurance agreement whereby one reinsurer (the retrocedent)
transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer
(the retrocessionaire)
Retrocedent - Answers The reinsurer that transfers or cedes all or part of the insurance risk it
has assumed to another reinsurer
Retrocessionaire - Answers The reinsurer that assumes all or part of the reinsurance risk
accepted by another reinsurer
Six principal functions for primary insurers - Answers Increase large line capacity
Provide catastrophe protection
Stabilize loss experience
Provide surplus relief
Facilitate withdrawal from a market segment
, Provide underwriting guidance
Large line capacity - Answers An insurer's ability to provide larger amounts of insurance for
property loss exposures, or higher limits of liability for liability loss exposures, that it is
otherwise willing to provide
Line - Answers The maximum amount of insurance or limit of liability that an insurer will accept
on a single loss exposure
Insurance regulations prohibit an insurer from retaining (after reinsurance) more than ________ %
of its policyholder surplus - Answers 10 %
Three ways reinsurance stabilizes loss experience - Answers Limits its liability for a single loss
exposure
Limits its liability for several loss exposures affected by a common event
Limits its liability for loss exposures that aggregate claims over time
Surplus relief - Answers A replenishment of policyholders' surplus provided by the ceding
commission paid to the primary insurer by the reinsurer.
Written premium to policyholder surplus is out of bounds if it exceeds what ratio? - Answers 3
to 1 or 300%
Portfolio reinsurance - Answers Reinsurance that transfers to the reinsurer liability for an entire
type of insurance, territory or book of business after the primary insurer has issued the policies.
Way for the primary insurer to exit a market
novation - Answers An agreement under which one insurer or reinsurer is substituted for
another
Reinsurance can be purchased from three sources - Answers Professional reinsurers
Reinsurance departments of primary insurers
Reinsurance pools, syndicates and associations
Professional reinsurers - Answers An insurer whose primary business purpose is serving other
insurers' reinsurance needs
Direct writing reinsurer - Answers A professional reinsurer whose employees deal directly with
primary insurers
Reinsurance intermediary - Answers An intermediary that works with primary insurers to
develop reinsurance programs and that negotiates contracts of reinsurance between the
primary insurer and reinsurer, receiving commission for placements and other services rendered
Reinsurance - Answers The transfer of insurance risk from one insurer to another through a
contractual agreement under which one insurer (the reinsurer) agrees, in return for reinsurance
premium, to indemnify another insurer (the primary insurer) for some or all of the financial
consequences of certain loss exposures covered by the primary insurance policies
Primary insurer - Answers In reinsurance, the insurer that transfers or cedes all or part of the
insurance risk it has assumed to another insurer in a contractual arrangement
Reinsurer - Answers The insurer that assumes some or all of the potential costs of insured loss
exposures of the primary insurer in a reinsurance contractual agreement
Reinsurance agreement - Answers Contract between the primary insurer and reinsurer that
stipulates the form or reinsurance and the type of accounts to be reinsured
Insurance risk - Answers Uncertainty about the adequacy of insurance premiums to pay losses
Retention - Answers The amount retained by the primary insurer in the reinsurance
transaction...usually required by the reinsurer
Risk, as it relates to reinsurance - Answers refers to the subject of the reinsurance agreement
Reinsurance premium - Answers The consideration paid by the primary insurer to the reinsurer
for assuming some or all of the primary insurer's insurance risk
Ceding commission - Answers An amount paid by the reinsurer to the primary insurer to cover
part or all of the primary insurer's policy acquisition expenses
Retrocession - Answers A reinsurance agreement whereby one reinsurer (the retrocedent)
transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer
(the retrocessionaire)
Retrocedent - Answers The reinsurer that transfers or cedes all or part of the insurance risk it
has assumed to another reinsurer
Retrocessionaire - Answers The reinsurer that assumes all or part of the reinsurance risk
accepted by another reinsurer
Six principal functions for primary insurers - Answers Increase large line capacity
Provide catastrophe protection
Stabilize loss experience
Provide surplus relief
Facilitate withdrawal from a market segment
, Provide underwriting guidance
Large line capacity - Answers An insurer's ability to provide larger amounts of insurance for
property loss exposures, or higher limits of liability for liability loss exposures, that it is
otherwise willing to provide
Line - Answers The maximum amount of insurance or limit of liability that an insurer will accept
on a single loss exposure
Insurance regulations prohibit an insurer from retaining (after reinsurance) more than ________ %
of its policyholder surplus - Answers 10 %
Three ways reinsurance stabilizes loss experience - Answers Limits its liability for a single loss
exposure
Limits its liability for several loss exposures affected by a common event
Limits its liability for loss exposures that aggregate claims over time
Surplus relief - Answers A replenishment of policyholders' surplus provided by the ceding
commission paid to the primary insurer by the reinsurer.
Written premium to policyholder surplus is out of bounds if it exceeds what ratio? - Answers 3
to 1 or 300%
Portfolio reinsurance - Answers Reinsurance that transfers to the reinsurer liability for an entire
type of insurance, territory or book of business after the primary insurer has issued the policies.
Way for the primary insurer to exit a market
novation - Answers An agreement under which one insurer or reinsurer is substituted for
another
Reinsurance can be purchased from three sources - Answers Professional reinsurers
Reinsurance departments of primary insurers
Reinsurance pools, syndicates and associations
Professional reinsurers - Answers An insurer whose primary business purpose is serving other
insurers' reinsurance needs
Direct writing reinsurer - Answers A professional reinsurer whose employees deal directly with
primary insurers
Reinsurance intermediary - Answers An intermediary that works with primary insurers to
develop reinsurance programs and that negotiates contracts of reinsurance between the
primary insurer and reinsurer, receiving commission for placements and other services rendered
