CMA Final · Risk Management in Banking and Insurance · Structure and Type of Re-insurance
Which statement about facultative reinsurance is correct?
In facultative reinsurance the cedant offers each individual risk separately and the reinsurer has the choice to accept or decline it. This contrasts with treaty reinsurance, where the reinsurer is automatically bound to accept risks falling within the agreed treaty terms.
- AThe cedant offers each individual risk and the reinsurer may accept or decline itCorrect
- BThe reinsurer is automatically bound to accept all risks within the treaty limits
- CIt applies only to catastrophe losses above an aggregate retention
- DIt is available only for life insurance business
Explanation
Facultative reinsurance is placed risk by risk, with the reinsurer free to accept or refuse each offer. Automatic acceptance describes treaty reinsurance. It is not limited to catastrophe or life business.
Did you get it right without looking?
One question tells you little. A timed set on Structure and Type of Re-insurance shows your real accuracy, how long you take and where you lose marks.
More Structure and Type of Re-insurance questions
- In a surplus (proportional) treaty of reinsurance, how is the reinsurer's share of premium and claims on each ceded risk determined?
- Which statement best describes facultative reinsurance as distinct from treaty reinsurance?
- Under Section 6B of the Insurance Act, 1938, a scheme to bring an insurer's capital structure into conformity with section 6A is sanctioned …
- A surplus treaty has a retention line of Rs 2 crore and the insurer cedes the excess over its retention to the reinsurer. For a risk with su…
- Himalaya Insurance has an excess of loss treaty covering Rs 8 crore in excess of Rs 2 crore retention per risk, applied to each risk separat…
- Under a quota share treaty, a reinsurer accepts 40% of every policy written by the cedant, in return for 40% of the premium and 40% of the l…