Assume you are an insurance consultant who is asked to give recommendations conc
ID: 2755175 • Letter: A
Question
Assume you are an insurance consultant who is asked to give recommendations concerning the type of reinsurance plan or arrangement to use. For each of the following situations, indicate the type of reinsurance plan or arrangement that the ceding insurer should use, and explain the reasons for your answer.
1) Company A is an established insurer and is primarily interested in having protection against a catastrophic loss arising out of single occurrence.
2) Company B is a rapidly growing new company and desires a plan of reinsurance that will reduce the drain on its surplus because of the expense of writing a large volume of new business.
3) Company C has received an application to write a $50 million life insurance policy on the life of the chief executive officer of a major corporation. Before the policy is issued, the underwriter wants to make certain that adequate reinsurance is available.
4) Company D would like to increase its underwriting capacity to underwrite new business.
Explanation / Answer
Answer:Treaty reinsurance: It covered that losses. and this type of event under non proportional.
Answer:2) Indemnity Reinsurance: Third use of indemnity reinsurance is to reduce the drain on surplus caused by writing new business.the expense of putting a new policy on the books greatly exceeds the first-year gross premium.
Answer:3) Life insurance because it cover life insurance and adequate reinsurance is available.
Answer:4) Facultative Reinsurance: Because it is useful when the primary insurer has no experience with a particular risks and turns to the reinsurer for underwriting assistance.