Insurance Awareness - Reinsurance
Which of the following statements about the relationship between an insurer and a reinsurer is TRUE?
Which of the following statements about the relationship between an insurer and a reinsurer is TRUE?
hard Q10 of 15
Step-by-Step Solution
Step 1: Understand insurer-reinsurer relationship
The insurer transfers (cedes) part of its risk to the reinsurer under a reinsurance contract to manage exposure.Step 2: Analyze options
The reinsurer directly settles claims with policyholders is false; reinsurers do not settle claims directly with policyholders. The reinsurer issues insurance policies to the public alongside the insurer is incorrect as reinsurers do not sell to the public. The insurer acts as a regulator for the reinsurer is wrong because regulation is done by IRDAI, not insurers.Final Answer:
The insurer cedes part of its risk to the reinsurer under a reinsurance agreement → Option CQuick Check:
This is the fundamental basis of reinsurance.
Quick Trick: Ceding risk = transferring risk to reinsurer.
Common Mistakes:
MISTAKES- Assuming reinsurer deals directly with policyholders or acts as regulator.
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