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Difficulty: EasyReinsurance, Co-insurance, and Underwriting Concepts

Apex Insurance Plc issues a comprehensive policy covering a multi-billion naira industrial facility. To protect itself from catastrophic loss, Apex Insurance transfers a portion of this insured risk to another insurance firm. Which insurance concept is illustrated by this business arrangement?

  1. ReinsuranceAnswer
  2. B
    Co-insurance
  3. C
    Underwriting
  4. D
    Indemnity

Answer

Reinsurance
Reinsurance is the process where a primary insurer (the ceding company) transfers part of its risk liability to another insurance company (the reinsurer) to prevent severe financial strain from large claims.

Step-by-Step Solution

1
Identify the relationship between the parties in the scenario
The primary insurer (Apex Insurance Plc) accepted a risk directly from a client and then transferred a part of that risk to another insurer.
Understanding who is sharing the risk distinguishes reinsurance from direct insurance or co-insurance.
2
Match the transaction type to the correct commercial insurance term
Insurance bought by an insurance company from another insurer is termed reinsurance.
Reinsurance provides risk protection for the primary insurance company itself.

Key Concept

Reinsurance Concept
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Topics

Reinsurance, Co-insurance, and Underwriting Concepts

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