CPCU 520 Chapter 8 Exam Questions and Answers| New Update with 100% Correct Answers
Reinsurance 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 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 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 Contract between the primary insurer and reinsurer that stipulates
the form or reinsurance and the type of accounts to be reinsured
Insurance risk Uncertainty about the adequacy of insurance premiums to pay losses
Retention The amount retained by the primary insurer in the reinsurance
transaction...usually required by the reinsurer
Risk, as it relates to reinsurance refers to the subject of the reinsurance agreement
Reinsurance premium The consideration paid by the primary insurer to the reinsurer for
assuming some or all of the primary insurer's insurance risk
Ceding commission An amount paid by the reinsurer to the primary insurer to cover part or
all of the primary insurer's policy acquisition expenses
, Retrocession 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 The reinsurer that transfers or cedes all or part of the insurance risk it has
assumed to another reinsurer
Retrocessionaire The reinsurer that assumes all or part of the reinsurance risk accepted by
another reinsurer
Six principal functions for primary insurers 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 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 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 10 %
Three ways reinsurance stabilizes loss experience Limits its liability for a single loss exposure
Limits its liability for several loss exposures affected by a common event
Reinsurance 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 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 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 Contract between the primary insurer and reinsurer that stipulates
the form or reinsurance and the type of accounts to be reinsured
Insurance risk Uncertainty about the adequacy of insurance premiums to pay losses
Retention The amount retained by the primary insurer in the reinsurance
transaction...usually required by the reinsurer
Risk, as it relates to reinsurance refers to the subject of the reinsurance agreement
Reinsurance premium The consideration paid by the primary insurer to the reinsurer for
assuming some or all of the primary insurer's insurance risk
Ceding commission An amount paid by the reinsurer to the primary insurer to cover part or
all of the primary insurer's policy acquisition expenses
, Retrocession 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 The reinsurer that transfers or cedes all or part of the insurance risk it has
assumed to another reinsurer
Retrocessionaire The reinsurer that assumes all or part of the reinsurance risk accepted by
another reinsurer
Six principal functions for primary insurers 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 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 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 10 %
Three ways reinsurance stabilizes loss experience Limits its liability for a single loss exposure
Limits its liability for several loss exposures affected by a common event
