Examkin

Question

Difficulty: MediumReinsurance Concepts

Match each specific reinsurance scenario or legal principle with its correct operational term.

  • Negotiating the transfer of risk for a single, highly valued commercial warehouse policy on an individual basis.Facultative Reinsurance
  • An automatic agreement where a ceding company transfers 40% of all its commercial auto policies.Treaty Reinsurance
  • A reinsurer transferring a portion of its assumed catastrophic risk portfolio to a third-party carrier.Retrocession
  • The legal doctrine establishing that the original policyholder has no direct claim rights against the reinsurer.Privity of Contract

Answer

The scenarios correctly match to: 1-Facultative Reinsurance, 2-Treaty Reinsurance, 3-Retrocession, and 4-Privity of Contract.
Each scenario accurately represents a fundamental pillar of reinsurance operations: facultative is for individual risks, treaty is for automatic portfolio ceding, retrocession is for reinsurers transferring their own risk, and privity of contract maintains the legal boundary between the reinsurer and the original policyholder.

Step-by-Step Solution

1
Analyze the method of risk transfer in each operational scenario.
Individual risk transfer aligns with facultative mechanisms, while automatic portfolio transfer aligns with treaty mechanisms.
Understanding how risks are selected (individually vs. automatically) differentiates the two primary types of reinsurance.
2
Identify the entities involved in the risk chain.
When a reinsurer transfers risk to another entity, it is known as retrocession.
The prefix 'retro-' signifies moving the risk one step further down the chain from the initial reinsurer.
3
Determine the legal standing of the original insured.
The original insured has no direct relationship with the reinsurer due to privity of contract.
Reinsurance is a contract solely between the primary insurer and the reinsurer.

Key Concept

Reinsurance Mechanisms and Legal Framework
Rate this question

Topics

Reinsurance Concepts

More questions from this topic