AFSB 151 COMPREHENSIVE EXAM ACTUAL
QUESTIONS AND ANSWERS SURE A+
✔✔A replenishment of policyholders' surplus provided by the ceding commission paid to
the primary insurer by the reinsurer is - ✔✔Surplus relief
✔✔New Insurance Company noticed many insurers were withdrawing from the
contractor's liability insurance market. The company believed this was a great
opportunity to enter this market and earn substantial profits. New Insurance, however,
lacked the experience and expertise to successfully market contractor's liability
insurance, and their participation in this market was a dismal failure. New Insurance
Company decided to formally withdraw from this market and to shift all future
responsibility for contractor's liability claims to a reinsurer. What type of reinsurance is
specifically designed to cover a whole class of business like New Insurance Company's
contractor's liability insurance? - ✔✔Portfolio reinsurance
✔✔An insurer's ability to provide larger amounts of insurance for property loss
exposures, or higher limits of liability for liability loss exposures, than it is otherwise
willing to provide is - ✔✔Large-line capacity.
✔✔Reinsurance is best described as - ✔✔An agreement by a reinsurer to indemnify a
primary insurer for losses.
, ✔✔Crimson Casualty Company began insurance operations last year. The company
experienced phenomenal success and wrote far more premiums than expected. A
representative from the state insurance department contacted Crimson Casualty and
warned the company that it was growing too fast and risking insolvency. The insurance
regulator added, "Of course you can use reinsurance to help remedy your situation."
The regulator was referring to which one of the following functions of reinsurance? -
✔✔Using reinsurance to provide surplus relief
✔✔Which one of the following statements is correct regarding the use of treaty and
facultative reinsurance? - ✔✔Most treaties require that all loss exposures within the
treaty's terms be reinsured.
✔✔Which one of the following statements is correct with regard to the use of facultative
reinsurance? - ✔✔The treaty reinsurer is usually willing to allow the primary insurer to
remove high-hazard loss exposures from the treaty by using facultative reinsurance.
✔✔Which one of the following statements is correct regarding treaty reinsurance? -
✔✔If treaty reinsurance agreements permitted primary insurers to choose which loss
exposures they ceded, the reinsurer would be exposed to adverse selection.
✔✔Which one of the following statements regarding treaty reinsurance and facultative
reinsurance is true? - ✔✔Administrative costs per-risk are higher under a facultative
reinsurance arrangement than under a treaty reinsurance arrangement.
✔✔In surplus share reinsurance, when is surplus ceded to the reinsurer? - ✔✔When the
limit of the bond is greater than the surety's retention limit, the additional amount is
ceded to the reinsurer.
✔✔Which one of the following describes a type of excess of loss reinsurance that
anticipates a regular pattern of reinsured losses and is typically rated using an
experience-sensitive mechanism? - ✔✔Working cover reinsurance
✔✔Which one of the following describes a type of reinsurance in which the ceding
company is indemnified for the portion of a loss that exceeds a specified amount—the
ceding company's net retention? - ✔✔Excess of loss reinsurance
✔✔In surplus work program reinsurance, when is surplus ceded to the reinsurer? -
✔✔When the surety's expression of aggregate risk appetite for each contractor is
reached, the surplus is ceded to the reinsurer.
✔✔Reinsurance pools, syndicates, and associations are - ✔✔Groups of insurers that
share the loss exposures of the group, usually through reinsurance.
QUESTIONS AND ANSWERS SURE A+
✔✔A replenishment of policyholders' surplus provided by the ceding commission paid to
the primary insurer by the reinsurer is - ✔✔Surplus relief
✔✔New Insurance Company noticed many insurers were withdrawing from the
contractor's liability insurance market. The company believed this was a great
opportunity to enter this market and earn substantial profits. New Insurance, however,
lacked the experience and expertise to successfully market contractor's liability
insurance, and their participation in this market was a dismal failure. New Insurance
Company decided to formally withdraw from this market and to shift all future
responsibility for contractor's liability claims to a reinsurer. What type of reinsurance is
specifically designed to cover a whole class of business like New Insurance Company's
contractor's liability insurance? - ✔✔Portfolio reinsurance
✔✔An insurer's ability to provide larger amounts of insurance for property loss
exposures, or higher limits of liability for liability loss exposures, than it is otherwise
willing to provide is - ✔✔Large-line capacity.
✔✔Reinsurance is best described as - ✔✔An agreement by a reinsurer to indemnify a
primary insurer for losses.
, ✔✔Crimson Casualty Company began insurance operations last year. The company
experienced phenomenal success and wrote far more premiums than expected. A
representative from the state insurance department contacted Crimson Casualty and
warned the company that it was growing too fast and risking insolvency. The insurance
regulator added, "Of course you can use reinsurance to help remedy your situation."
The regulator was referring to which one of the following functions of reinsurance? -
✔✔Using reinsurance to provide surplus relief
✔✔Which one of the following statements is correct regarding the use of treaty and
facultative reinsurance? - ✔✔Most treaties require that all loss exposures within the
treaty's terms be reinsured.
✔✔Which one of the following statements is correct with regard to the use of facultative
reinsurance? - ✔✔The treaty reinsurer is usually willing to allow the primary insurer to
remove high-hazard loss exposures from the treaty by using facultative reinsurance.
✔✔Which one of the following statements is correct regarding treaty reinsurance? -
✔✔If treaty reinsurance agreements permitted primary insurers to choose which loss
exposures they ceded, the reinsurer would be exposed to adverse selection.
✔✔Which one of the following statements regarding treaty reinsurance and facultative
reinsurance is true? - ✔✔Administrative costs per-risk are higher under a facultative
reinsurance arrangement than under a treaty reinsurance arrangement.
✔✔In surplus share reinsurance, when is surplus ceded to the reinsurer? - ✔✔When the
limit of the bond is greater than the surety's retention limit, the additional amount is
ceded to the reinsurer.
✔✔Which one of the following describes a type of excess of loss reinsurance that
anticipates a regular pattern of reinsured losses and is typically rated using an
experience-sensitive mechanism? - ✔✔Working cover reinsurance
✔✔Which one of the following describes a type of reinsurance in which the ceding
company is indemnified for the portion of a loss that exceeds a specified amount—the
ceding company's net retention? - ✔✔Excess of loss reinsurance
✔✔In surplus work program reinsurance, when is surplus ceded to the reinsurer? -
✔✔When the surety's expression of aggregate risk appetite for each contractor is
reached, the surplus is ceded to the reinsurer.
✔✔Reinsurance pools, syndicates, and associations are - ✔✔Groups of insurers that
share the loss exposures of the group, usually through reinsurance.
