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1/20 M97/February 2018 Reinsurance
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Chapter

Question answers

1.1 The insurer is likely to buy less protection and raise retention limits instead. If the cost of reinsurance is
prohibitively expensive, the insurer might be obliged to limit the extent of cover it can offer to insureds. In
extreme cases, the insurer may consider withdrawing from that particular market sector altogether.
1.2 The administrative burden of having to place the risk with more than one company is reduced, as is the claims
collection process, thus representing significant economy of scale benefits. It is also easier to track the
performance of and security offered by just one insurer.
1.3 Excessive retention of risk cuts across one of the basic principles of insurance practice, that of spread of risk.

1.4 Specialised knowledge and expertise is required to underwrite an inwards reinsurance account successfully.
1.5 The reinsured is promising to pay a set premium by an agreed date. Sometimes this is at the start of the
contract but more often it is through its duration with a ‘settling of accounts’ at the end in the form of an
adjustment premium.
1.6 Reinsurance, and for that matter retrocession, relationships are several steps removed from the private
individual requiring private car or home insurance, and call for a level of expertise that an agent with a non-
insurance background will certainly not possess. Reference copy for CII Face to Face Training