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iv M97/February 2018 Reinsurance

Chapter 4 self-test answers

1. The quota share is an obligatory ceding treaty where the insurer has to cede a fixed percentage of all
its risks within agreed parameters. The reinsurer is obliged to accept all the cessions made, usually
subject to a maximum amount any one cession.
2. By reducing net retained income.
3. A severance of one part of a unit, usually involving a risky component of an account offered for
reinsurance leading to a parallel or secondary treatment and facultative terms applied.
4. A second surplus treaty may only have larger risks, in which case, fewer cessions will be made to it.
This means that there is less premium available to build reserves against any potential losses and
such treaties may be subject to considerable fluctuations in results.
5. A facultative obligatory treaty allows individual cessions to be placed at the ceding company’s
option whilst the reinsurer is obligated to accept all such cessions.
6. The main purpose of premium portfolio transfers is to transfer unexpired liability under a treaty from
one reinsurer to another, usually at the anniversary date of the treaty.
7. The loss above an agreed loss ratio is redistributed so that the cedant bears some portion of a very
heavy loss rather than the reinsurer bearing the whole burden. Reference copy for CII Face to Face Training