BluePeak Insurance Company writes a large volume of commercial auto policies. To protect its financial stability against catastrophic losses, BluePeak enters into an agreement to transfer a portion of the risk from these policies to Alpine Re. In this specific reinsurance arrangement, how is BluePeak Insurance Company classified?
- The ceding insurer, because it is transferring a portion of its risk to another insurance entity.Answer
- BThe assuming reinsurer, because it initially assumed the risk from the commercial auto policyholders.
- CThe retrocessionaire, because it is participating in a secondary risk transfer market.
- DA risk retention group, because it chooses to retain a portion of the losses instead of avoiding them.
Answer
The primary insurer that transfers its risk to another company is classified as the ceding insurer.
The correct answer accurately identifies BluePeak Insurance Company as the ceding insurer. In a reinsurance transaction, the primary insurer that transfers or 'cedes' a portion of its risk to another company is called the ceding company or ceding insurer.
Step-by-Step Solution
Key Concept
Reinsurance Roles (Ceding vs. Assuming)