In a proportional reinsurance treaty, how are premiums and losses shared between the insurer and reinsurer?

easy Q2 of 15

Insurance Awareness - Reinsurance

ABoth premiums and losses are shared in agreed proportions

BLosses are shared, but premiums are retained fully by the insurer

CPremiums are shared, but losses are borne entirely by the insurer

DNeither premiums nor losses are shared; reinsurer only provides advice

Step-by-Step Solution

Step 1: Understand proportional reinsurance
In proportional reinsurance, the insurer and reinsurer share premiums and losses in agreed percentages.
Step 2: Evaluate options
Option A is correct: both premiums and losses are shared in agreed proportions. Options B and C incorrectly describe sharing only one side (losses or premiums), and D is wrong as reinsurers actively share risk.
Final Answer:
Both premiums and losses are shared in agreed proportions → Option A
Quick Check:
[Proportional reinsurance] = [Premiums and losses shared in agreed proportions] ✅

Quick Trick: Proportional = Proportionate sharing of premiums and losses.

Common Mistakes:

MISTAKES

Confusing proportional with non-proportional reinsurance where only losses above a threshold are shared.

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