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RPLU-05 Reinsurance Test | Questions and Answers Verified 100% Correct
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RPLU-05 Reinsurance Test | Questions and Answers Verified 100% Correct
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RPLU-05 Reinsurance Test | Questions andAnswers Verified 100% Correct
2 types of Off Shore Reinsurers - ✔✔-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 - ✔✔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) - ✔✔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
DISADVANTAGE (to reinsured): reinsured is obligated to cede all business belonging to
certain class or portfolio
Reinsurance Agreement: Treaty (+/- for reinsurer) - ✔✔Advantage: same as reinsured
and also: it further improves UW expertise and ability to assume large premium volume
under a single agreement
Disadvantage: reinsurer is obligated to accept all exposures covered by treaty;
exposures not examined individually
, Reinsurance Agreement: Facultative (+/- for reinsured) - ✔✔Advantage: not
obligatory; one contract covers one exposure; focus on certain types; good with
complex exposures
Disadvantage: short term relationship with reinsurer; more expensive
Reinsurance Agreement: Facultative (+/- for reinsurer) - ✔✔Advantage: no
obligatory, can examine individual exposures; focus on certain types; good with complex
exposures
Disadvantage: short term relationship with reinsured; limits are usually very low
compared to limit exposure
What are the two methods of purchasing treaty and facultative reinsurance? -
✔✔Proportional (pro-rata) - the insurer and reinsurer share premiums based on %
agreed to by both parties, provides increased capacity for cedant by increasing limit of
insurance it may not otherwise be permitted to write and provides surplus relief
becuase it reimburses the cedant for policy acquisition costs and replinshes policyholder
surplus
Non-Proportional agreements - no predetermined % for how premiums will be shared;
when insurer incurs losses, the reinsurer reimburses a portion of any loss that meets
certain criteria; no ceding commission
What are the 2 structure types of Proportional agreements - ✔✔1. Quota Share -
reinsurer agrees to share the premiums and losses of insurer on a specific or fixed %
basis; provides capacity, underwriting expertise, or surplus relief
2. Surplus Share: cedant given opportunity to select a retained dollar limit on written
policy and reinsurer may then agree to assume dollar portion of the limit above the
retained limit (% share is determined after the cedant selects a retained dollar limit)
-provides surplus relief, capacity, stability, underwriter expertise, catastrophe protection
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