[Solved] Which of the following statements about treaty reinsurance is correct? — Ans: It involves an agreement covering a portfolio of risks between insurer and... | Insurance Awareness

Insurance Awareness - Reinsurance

Which of the following statements about treaty reinsurance is correct?

AIt involves an agreement covering a portfolio of risks between insurer and reinsurer

BIt covers individual risks on a case-by-case basis

CIt eliminates the insurer’s liability entirely

DIt allows policyholders to claim directly from the reinsurer

Step-by-Step Solution

Step 1: Understand treaty reinsurance
Treaty reinsurance is a contract covering a portfolio or block of risks, automatically accepted by the reinsurer.
Final Answer:
It involves an agreement covering a portfolio of risks between insurer and reinsurer → Option A
Quick Check:
It covers individual risks on a case-by-case basis describes facultative reinsurance; treaty covers portfolios, not individual risks.

Quick Trick: Treaty = Total portfolio agreement.

Common Mistakes:

MISTAKES

Confusing treaty with facultative reinsurance or thinking it eliminates insurer liability.

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Which of the following statements about treaty reinsurance is correct?