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RPLU Professional Liability Reinsurance Test | Questions and Answers Verified 100% Correc
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RPLU Professional Liability Reinsurance Test |Questions and Answers Verified 100% Correct
Distinguish reinsurance from: Coinsurance - ✔✔Coinsurance exists when the risks for certain
insurance coverage are shared by two or more insurers who are directly and primarily bound to
the insured per the insurance policy's terms and conditions. Reinsurance, on the other hand, is
an exclusive agreement between the cedant/reinsured and the reinsurer that does not create a
direct relationship between the insured and the reinsurer.
Distinguish reinsurance from: Partnership - ✔✔Partnership implies that two or more
individuals or entities have similar knowledge, share results on an equivalent basis, and can
terminate their relationship when desired. Reinsurance is not a type of business organization. It
is a risk management tool in which an insurance company cedes all or part of the exposures it
assumes to another insurance company.
Distinguish reinsurance from: Banking - ✔✔Both reinsurance and banking provide financial
services. Banks receive deposits and make loans to others in return for interests paid on those
loans. Reinsurance is a transfer of liability. Reinsurers receive premium for the liability assumed.
Distinguish reinsurance from: Syndication - ✔✔Syndication is the issuance of more than one
policy jointly covering an insurance exposure. In reinsurance, liabilities assumed are several and
not joint. The failure of one reinsurer does not increase the liabilities of the remaining
reinsurers.
Capacity - ✔✔Capacity may, therefore, be defined as the insurer's or reinsurer's financial
ability
to assume the maximum amount of coverage each is allowed to assume within a given period.
Capacity can either refer to the maximum amount of capacity for an individual policy or risk or
to the maximum total amount of premium to be written by the cedant/reinsured. For example,
if the insurer has a $1 billion capacity, then it can only accept coverage up to that amount. By
accepting exposures only up to their capacity limits, insurers are able to effectively fulfill their
financial obligations to their insureds and manage their portfolios to make their businesses
profitable. Alternatively, they may use certain types of reinsurance to help increase their
capacity, when needed.
,Reciprocity - ✔✔Reciprocity is the exchange of reinsurance between two or more companies
and provides one of the historical foundations of the insurance and reinsurance relationship. It
may be defined as a reciprocal reinsurance arrangement in which a minimum of two insurance
companies agree to reinsure a portion of each company's insurance obligations.
This reciprocal reinsurance arrangement works to the benefit of both companies. To illustrate,
Insurer A writes 100 percent building and personal property and Insurer B writes 100 percent
D&O liability. In an effort to diversify their business writings, Insurer A and B establish a
reciprocal reinsurance agreement in which Insurer A agrees to reinsure 50 percent of Insurer
B's D&O liability, and Insurer B agrees to reinsure 50 percent of Insurer A's building and
personal property.
A syndicate - ✔✔A syndicate is a facility established to transact reinsurance coverage among
several reinsurers. A closed group of financial backers called members comprise a given
syndicate. Unlike a partnership or a corporation, a syndicate does not assume liability. Rather,
each individual member assumes liability independently and underwrites on its own behalf.
Syndicates are open for a limited time to write business and to handle claims. The syndication
concept recognizes that the size and potential loss amounts associated with many insurance
exposures could lead to financial ruin and should be spread among many insurers and
reinsurers.
How do you think insurance companies manage to stay in business? - ✔✔One way insurance
companies survive catastrophic events such as hurricanes, earthquakes, terrorism, and
securities class-action lawsuits is through reinsurance.
The insurer is often called the - ✔✔cedant/reinsured, ceding company, or reinsured.
The oldest known reinsurance agreement can be traced back to - ✔✔1370 in Genoa, Italy.
Later, a group of underwriters gathered at John Lloyd's coffeehouse in London in 1688. Their
work eventually grew to what is now known as Lloyd's (formerly Lloyd's of London), which
remains one of the major participants in the reinsurance industry.
The first professional reinsurance company was Cologne Re based in Germany. - ✔✔It was
founded in response to a major fire in Hamburg in 1842, which recorded a total loss of 18
,million marks. During that time, the fund allotted by Hamburg to insure fire losses was only
500,000 marks. This event signaled the serious need for a more formal and structured
reinsurance system. Consequently, Cologne Re was established. So, from its simple beginnings,
reinsurance has grown into a vital risk management tool of the insurance industry.
All reinsurance contracts are based on a written agreement between - ✔✔The
insurer/cedant/reinsured and the reinsurer.
10% Capacity Rule - ✔✔A state requirement providing that the maximum limit of liability for
each policy or exposure must not exceed 10% of an insurer's policyholders' surplus.
Access to Records Article - ✔✔A reinsurance agreement article that reinforces the
reinsurer's right to examine and inspect all documents of the cedant/reinsured related to the
business covered by the reinsurance agreement.
Account Executive - ✔✔A salaried employee of a reinsurance company who is responsible
for selling and marketing the company's products and services.
Actuary - ✔✔A professional statistician who has specialized academic training and who
calculates the risks and probabilities of future events, estimates claim costs based on past
experience, and uses projections to establish insurance rates.
Note: An actuary may also develop experience and schedule rating plans that can be used to
modify the base rates.
Admitted Reinsurer - ✔✔A reinsurance company that is licensed or authorized to conduct
business in a particular state, that may be located outside the U.S., and that must meet certain
requirements for admitted status.
Aggregate Limit - ✔✔The maximum amount the insurer will pay within a specific policy
period for all of the claims incurred under an insurance policy.
, Aggregate Non-
Proportional Agreement - ✔✔The reinsurer's agreement to reimburse losses once the
reinsured's aggregate (or sum total) of losses exceeds the predetermined retention.
Arbitration - ✔✔A method of alternative dispute resolution that allows the disputing parties
to present arguments and evidence to an independent and impartial third party (arbitrator) and
that usually binds the parties to the arbitrator's decision
Arbitration Article - ✔✔A reinsurance agreement article that provides that any disputes
arising between the parties to the reinsurance agreement shall be settled by arbitration, rather
than through litigation.
Arbitrator - ✔✔A independent and impartial third party who makes a decision to resolve a
dispute submitted for arbitration.
Article - ✔✔A clause or provision found in reinsurance agreements.
Automatic Facultative Placement - ✔✔A facultative placement that requires the reinsurer to
accept all policies that meet certain exposure criteria agreed to by the cedant/reinsured and
reinsurer but that does not obligate the insured to cede certain policies.
Banking - ✔✔The bank's use of client deposits to make loans to borrowers (individuals and
businesses) on which borrowers pay interest on the money loaned to them.
Book of Business - ✔✔A segment or class of business an insurer writes and manages
Note: Also called a portfolio.
Broker Market Channel - ✔✔A type of reinsurance distribution channel that assumes
business through reinsurance intermediaries.
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