[Solved] In a non-proportional excess of loss reinsurance treaty, which of the following is TRUE about the insurer’s and reinsurer’s responsibilities? | Insurance Awareness

Insurance Awareness - Reinsurance

In a non-proportional excess of loss reinsurance treaty, which of the following is TRUE about the insurer’s and reinsurer’s responsibilities?

AThe reinsurer shares premiums and losses in a fixed percentage

BThe reinsurer pays losses only after the insurer’s retention limit is exceeded

CThe insurer cedes all risks regardless of size to the reinsurer

DThe reinsurer pays claims directly to policyholders

Step-by-Step Solution

Step 1: Understand excess of loss reinsurance
In excess of loss reinsurance, the reinsurer covers losses exceeding the insurer’s retention limit.
Step 2: Analyze options
The reinsurer pays losses only after the insurer’s retention limit is exceeded correctly states the reinsurer’s liability starts after retention. The reinsurer shares premiums and losses in a fixed percentage describes proportional reinsurance, "The insurer cedes all risks regardless of size to the reinsurer" is incorrect as not all risks are ceded, and D is false because claims are paid by the primary insurer.
Final Answer:
The reinsurer pays losses only after the insurer’s retention limit is exceeded → Option B
Quick Check:
Excess of loss treaties protect insurers from large losses beyond their retention.

Quick Trick: Excess of loss = reinsurer covers losses beyond retention limit.

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In a non-proportional excess of loss reinsurance treaty, which of the following is TRUE about the insurer’s and reinsurer’s responsibilities?