Insurance Awareness - Reinsurance
Which of the following best explains why reinsurance does NOT eliminate all risks for the ceding insurer?
Which of the following best explains why reinsurance does NOT eliminate all risks for the ceding insurer?
hard Q9 of 15
Step-by-Step Solution
Step 1: Understand risk retention in reinsurance
Even after ceding risk, the insurer retains some portion and remains ultimately responsible to policyholders.Step 2: Evaluate options
Because the ceding insurer retains some risk and remains liable to policyholders correctly explains why risks are not fully eliminated. Because reinsurers only accept risks without any limits is false as reinsurers have limits. Because reinsurance contracts are not legally binding is incorrect because reinsurance contracts are legally binding. Because reinsurance increases the insurer’s exposure to risk is wrong as reinsurance reduces exposure.Final Answer:
Because the ceding insurer retains some risk and remains liable to policyholders → Option AQuick Check:
Risk retention and liability confirm Because the ceding insurer retains some risk and remains liable to policyholders as correct.
Quick Trick: Remember: Reinsurance reduces but does not eliminate insurer’s risk.
Common Mistakes:
MISTAKES- Assuming reinsurance removes all risk or contracts are non-binding.
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