Insurance Awareness - Reinsurance
Which of the following statements correctly differentiates quota share and surplus reinsurance?
Which of the following statements correctly differentiates quota share and surplus reinsurance?
hard Q9 of 15
Step-by-Step Solution
Step 1: Understand quota share and surplus reinsurance
Quota share involves ceding a fixed percentage of all risks regardless of size. Surplus cedes only the portion of risk exceeding the insurer's retention limit.Step 2: Analyze options
Quota share cedes a fixed percentage of all risks; surplus cedes only the portion exceeding the insurer's retention limit. correctly differentiates the two. Surplus cedes a fixed percentage of all risks; quota share cedes only the portion exceeding retention limit. reverses their definitions. Both quota share and surplus cede risks exceeding the retention limit only. is incorrect as quota share cedes all risks proportionally. Quota share is non-proportional; surplus is proportional. is wrong because both are proportional contracts.Final Answer:
Quota share cedes a fixed percentage of all risks; surplus cedes only the portion exceeding the insurer's retention limit. → Option DQuick Check:
This distinction is fundamental in proportional reinsurance types.
Quick Trick: Quota share = fixed % of all risks; Surplus = risk above retention.
Common Mistakes:
MISTAKES- Mixing definitions or confusing proportional with non-proportional.
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