Insurance Awareness - Reinsurance
Which of the following statements correctly explains why facultative reinsurance is preferred over treaty reinsurance for certain risks?
Which of the following statements correctly explains why facultative reinsurance is preferred over treaty reinsurance for certain risks?
hard Q9 of 15
Step-by-Step Solution
Step 1: Analyze the advantages of facultative reinsurance
Facultative reinsurance allows reinsurers to selectively accept risks after evaluation, which is ideal for unusual or large risks.Step 2: Evaluate each option
A is false because facultative requires underwriting, not automatic coverage; B is incorrect because treaty reinsurance is less flexible than facultative for unusual risks; D is wrong because the ceding insurer still performs initial risk assessment; C correctly describes the tailored evaluation advantage.Final Answer:
Facultative reinsurance allows reinsurers to evaluate and accept only those risks that meet their criteria, providing tailored risk management → Option CQuick Check:
[Facultative preference over treaty] = Reinsurers evaluate & accept only suitable risks ✅
Quick Trick: Facultative = tailored risk acceptance.
Common Mistakes:
MISTAKES- Assuming facultative is automatic or ceding insurer does no risk assessment.
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