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Self-test answers i

Chapter 1 self-test answers

1. As the business of insuring an insurance company or underwriter against suffering too great a loss
from their insurance operations and allowing an insurance company or underwriter to lay off or pass
on part of their liability to another insurer which they have accepted.
2. Insurers may not want a concentration of liability for one type of business, class of risk,
geographical area or other classification. By effecting reinsurance as part of a risk management
strategy they are able to achieve a spread of risk.
3. They have a pressing need to divest accumulations of risk that arise in the area from which they
receive business, either voluntarily or compulsorily. This is especially so if that area is prone to
natural hazards, such as windstorms and earthquakes.
4. To generate profits for the owners of the reinsurer and to produce premiums that can be used for
investment purposes. Insurers themselves can also act as reinsurers in order to spread risk and to
balance the inflow and outflow of premiums.
5. A company set up to transact Islamic reinsurance and accepts business from Takaful ceding
companies. The Takaful system is based on mutual cooperation, shared responsibility, joint
indemnity, common interest and solidarity between groups of participants.
6. In the UK, brokers must be authorised and regulated by the FCA. In the USA, each state has specific
laws to regulate the activities of brokerage firms complemented by limited Federal involvement. Reference copy for CII Face to Face Training