Assignment 13 - Reinsurance Transactions

Which one of the following statements is correct regarding treaty reinsurance? Select one: A. If treaty reinsurance agreements permitted primary insurers to choose which loss exposures they ceded, the reinsurer would be exposed to adverse selection. B. Primary insurers usually make treaty reinsurance agreements so their underwriters have discretion in using that reinsurance. C. If reinsurers are comfortable with a primary insurer's published underwriting guidelines, they are generally not concerned with the degree to which those guidelines represent the insurer's actual practices. D. The integrity and experience of the primary insurer's management are generally not factors that treaty reinsurers consider.

A. If treaty reinsurance agreements permitted primary insurers to choose which loss exposures they ceded, the reinsurer would be exposed to adverse selection.

Treaty reinsurance provides primary insurers with the Select one: A. Opportunity to cede individual loss exposures as it chooses. B. Certainty needed to formulate underwriting policy and develop underwriting guidelines. C. Option to reinsure identified classes of business. D. Necessary large-line capacity for exposures that exceed the facultative reinsurance limits.

B. Certainty needed to formulate underwriting policy and develop underwriting guidelines.

One reason that reinsurance treaties usually require primary insurers to cede all risks within identified classes is to Select one: A. Ensure adequate reinsurance premiums for reinsurers. B. Nullify the effects of poor underwriting by primary insurers. C. Avoid adverse selection against reinsurers. D. Reduce the need for facultative reinsurance.

C. Avoid adverse selection against reinsurers.

Which one of the following statements is correct regarding the use of treaty and facultative reinsurance? Select one: A. A primary insurer's underwriting policy and underwriting guidelines are usually developed by its treaty reinsurer. B. Usually, primary insurers have only one reinsurance treaty with a single reinsurer. C. Most treaties require that all loss exposures within the treaty's terms be reinsured. D. Primary insurers generally use facultative reinsurance as the foundation of their reinsurance program.

C. Most treaties require that all loss exposures within the treaty's terms be reinsured.

Treaty reinsurance Select one: A. Requires that a certificate be completed for each transaction. B. Obligates the reinsurer to cede loss exposures covered by the agreement. C. Obligates the reinsurer to assume those loss exposures that fall within the treaty. D. Requires that each loss exposure be separately submitted to the reinsurer.

C. Obligates the reinsurer to assume those loss exposures that fall within the treaty.

Which one of the following statements is correct regarding treaty reinsurance? Select one: A. Treaty reinsurance agreements are usually designed to allow underwriters to exercise discretion in determining which loss exposures to cede to the treaty reinsurers. B. Treaty reinsurance agreements are designed to address a primary insurer's need to insure atypical loss exposures. C. The price and terms of reinsurance agreements are standard with little negotiation between the parties. D. A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them.

D. A long-term relationship with a reinsurer usually enables primary insurers to consistently fulfill producers' requests to place insurance with them.

Which one of the following statements regarding treaty reinsurance and facultative reinsurance is true? Select one: A. Primary insurers wishing to reinsure a few loss exposures are more likely to use treaty reinsurance than facultative reinsurance. B. Treaty reinsurance arrangements allow the primary insurer to select which risks will be transferred to the reinsurer on a case-by-case basis. C. Facultative reinsurance is designed to address the need to reinsure many loss exposures over a period of time. D. Administrative costs per-risk are higher under a facultative reinsurance arrangement than under a treaty reinsurance arrangement.

D. Administrative costs per-risk are higher under a facultative reinsurance arrangement than under a treaty reinsurance arrangement.

A facultative reinsurance agreement is written for a specified time period Select one: A. And cannot be cancelled without the express written permission of the insured whose coverage is the subject of the agreement. B. But can be cancelled at any point during that period by the reinsurer for any reason, provided adequate notice is provided to the primary insurer. C. But can be cancelled at any time by the primary insurer. D. And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met.

D. And cannot be cancelled by either party unless contractual obligations, such as payment of premiums, are not met.

Facultative reinsurance Select one: A. Avoids concerns regarding adverse selection against the reinsurer. B. May be used to address a primary insurer's ongoing need for reinsurance. C. Is used to place loss portfolio transfers. D. Involves more administrative expense than treaty reinsurance transactions.

D. Involves more administrative expense than treaty reinsurance transactions.

Treaty reinsurance is best described as a reinsurance agreement Select one: A. In which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted. B. That covers an entire class or portfolio of loss exposures, and the reinsurer can typically accept or reject any loss exposures submitted. C. In which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer must accept all loss exposures submitted. D. That covers an entire class or portfolio of loss exposures, and all loss exposures that fall within the treaty are automatically reinsured.

D. That covers an entire class or portfolio of loss exposures, and all loss exposures that fall within the treaty are automatically reinsured.

Which one of the following statements is correct with regard to the use of facultative reinsurance? Select one: A. The administrative costs associated with placing facultative reinsurance are relatively low. B. Facultative reinsurance is generally not an option for insuring classes of loss exposures that are excluded under treaty reinsurance. C. Facultative reinsurance is generally not an option for insuring loss exposures that are inconsistent with the primary insurer's typical portfolio. D. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance.

D. The treaty reinsurer is usually willing to allow the primary insurer to remove high-hazard loss exposures from the treaty by using facultative reinsurance.