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vi M97/February 2018 Reinsurance

Chapter 6 self-test answers

1. ‘Horizontal’ limitation refers to restrictions in the number of reinstatements available, while ‘vertical’
limitation describes each layer of cover in the treaty being limited in amount, except when unlimited
cover applies.
2. A surplus treaty.
3. Any two from:
• administrative ease;
• simplified premium calculations;
• convenience when the individual accounts are small.
4. Risk premium; external costs; internal costs; profits.
5. ‘Development’ or ‘triangulation’ statistics are important in ‘long-tail’ classes of business because
they allow the reinsurer to predict the financial cost of a claim by applying the anticipated eventual
loss experience for each underwriting year between a loss being reported and its settlement.
6. Any three from:
• for all firm quote and firm order open market insurance and reinsurance business placed by
London Market brokers;
• for all marine open cargo covers and attaching declarations;
• for all declarations or off-slips attaching to line slips;
• for applicable declarations off limited binding authority agreements, with the agreement of the
coverholder, brokers and insurers.
7. • Grading all current and proposed security.
• Setting and monitoring aggregate exposure limits to each reinsurer.
• Monitoring market news and developments for information with security implications. Reference copy for CII Face to Face Training